Question 1

A child who has unearned income of $2,100 or less cannot be subject to the kiddie tax.

Accepted Answer

According to the IRS, a child who has unearned income of $2,100 or less cannot be subject to the kiddie tax for the tax year 2021. If the child has more than $2,100 in unearned income, then a portion of that income may be subject to the kiddie tax.

Question 2

A child who is married cannot be subject to the kiddie tax.

Accepted Answer

A child who is married is still subject to the kiddie tax if they meet the age and income requirements. Marriage does not exempt a child from the kiddie tax.

Question 3

Once a child reaches age 19, the kiddie tax no longer applies.

Accepted Answer

The answer of Once a child reaches age 19, the...

Question 4

Stuart has a short-term capital loss, a collectible long-term capital gain, and a long-term capital gain from land held as investment. The short-term loss is first applied to the collectible capital gain.

Accepted Answer

According to IRS rules, short-term capital losses are first applied to collectible long-term capital gains, and then to other long-term capital gains.

Question 5

The kiddie tax does not apply to a child whose earned income is more than one-half of his or her support.

Accepted Answer

This is true according to the rules of the kiddie tax. If a child earns more than half of their support, they are not subject to the kiddie tax.

Question 6

Which, if any, of the following is a deduction for AGI?
A)State and local sales taxes
B)Interest on home mortgage
C)Charitable contributions
D)Unreimbursed moving expenses of an employee
E)None of these

Accepted Answer

Unreimbursed moving expenses of an employee is a deduction for AGI, while options A, B, and C are deductions from AGI. None of the options can be chosen as the best as they all have different tax implications for various individuals.

Question 7

Regarding the tax formula and its relationship to Form 1040, which, if any, of the following statements is correct?
A)Most exclusions from gross income are reported on page 2 of Form 1040.
B)An "above the line deduction" refers to a deduction from AGI.
C)A "page 1 deduction" refers to a deduction for AGI.
D)The taxable income (TI) amount appears both at the bottom of page 1 and at the top of page 2 of Form 1040.
E)None of these.

Accepted Answer

The answer of Regarding the tax formula and its relationship...

Question 8

In terms of the tax formula applicable to individual taxpayers, which, if any, of the following statements is correct?
A)In arriving at taxable income, a taxpayer must choose between the standard deduction and deductions from AGI.
B)In arriving at AGI, personal and dependency exemptions must be subtracted from gross income.
C)In arriving at taxable income, a taxpayer must choose between the standard deduction and claiming personal and dependency exemptions.
D)The formula does not apply if a taxpayer elects to claim the standard deduction.
E)None of these.

Accepted Answer

The answer of In terms of the tax formula applicable...

Question 9

In terms of the tax formula applicable to individual taxpayers, which, if any, of the following statements is correct?
A)In arriving at AGI, a taxpayer must elect between claiming deductions for AGI and deductions from AGI.
B)In arriving at taxable income, a taxpayer must elect between claiming deductions for AGI and deductions from AGI.
C)If a taxpayer has deductions for AGI, the standard deduction is not available.
D)In arriving at taxable income, a taxpayer must elect between deductions for AGI and the standard deduction.
E)None of these.

Accepted Answer

None of the statements are correct. A taxpayer can claim both deductions for AGI and deductions from AGI to arrive at their AGI. The standard deduction is still available even if a taxpayer has deductions for AGI. And in arriving at taxable income, a taxpayer can use a combination of deductions for AGI and deductions from AGI along with the standard deduction or itemized deductions.

Question 10

Gain on the sale of collectibles held for more than 12 months always is subject to a tax rate of 28%.

Accepted Answer

The maximum tax rate on the gain from the sale of collectibles held for more than 12 months is 28%. However, the actual rate may be lower depending on the taxpayer's income tax bracket.

Question 11

When the kiddie tax applies and the parents are divorced, the applicable parent (for determining the parental tax) is the one with the greater taxable income.

Accepted Answer

The answer of When the kiddie tax applies and the...

Question 12

Which, if any, of the following is a deduction for AGI?
A)Contributions to a traditional Individual Retirement Account.
B)Child support payments.
C)Funeral expenses.
D)Loss on the sale of a personal residence.
E)Medical expenses.

Accepted Answer

Contributions to a traditional Individual Retirement Account are considered deductions for AGI. This means that they are subtracted from the taxpayer's gross income before arriving at their adjusted gross income. The other options listed are not deductions for AGI. Child support payments, funeral expenses, and medical expenses are all considered itemized deductions, and can only be deducted if they exceed a certain threshold. Losses on the sale of a personal residence may be deductible, but they are considered deductions from AGI, rather than deductions for AGI.

Question 13

Which, if any, of the statements regarding the standard deduction is correct?
A)Some taxpayers may qualify for two types of standard deductions.
B)The standard deduction is not available to taxpayers who choose to deduct their personal and dependency exemptions.
C)The standard deduction may be taken as a for AGI deduction.
D)The basic standard deduction is indexed for inflation but the additional standard deduction is not.
E)None of these.

Accepted Answer

The answer of Which, if any, of the statements regarding...

Question 14

During 2017, Marvin had the following transactions: Marvin's AGI is:

A)$32,000.
B)$38,000.
C)$44,000.
D)$56,000.
E)$64,000.

Accepted Answer

There is not enough information provided about Marvin's transactions to determine his AGI with certainty, but we can make an educated guess based on the fact that the standard deduction for single taxpayers in 2017 was $6,350. Assuming Marvin had no deductions or credits that would reduce his taxable income below the standard deduction, we can estimate his AGI by adding $6,350 to the highest income option provided: $38,000. This gives us an AGI of $44,350, which is closest to choice B.

Question 15

Which, if any, of the following statements relating to the standard deduction is correct?
A)If a taxpayer dies during the year, his (or her) standard deduction must be prorated.
B)If a taxpayer is claimed as a dependent of another, his (or her) additional standard deduction is allowed in full (i.e., no adjustment is necessary).
C)If spouses file separate returns, both spouses must claim the standard deduction (rather than itemize their deductions from AGI).
D)If a taxpayer is claimed as a dependent of another, no basic standard deduction is allowed.
E)None of these.

Accepted Answer

The answer of Which, if any, of the following statements...

Question 16

Frank sold his personal use automobile for a loss of $9,000. He also sold a personal coin collection for a gain of $10,000. As a result of these sales, $10,000 is subject to income tax.

Accepted Answer

The loss from the sale of Frank's personal automobile can be used to offset any capital gains, including the gain from the sale of his coin collection. Therefore, only the net gain of $1,000 ($10,000 gain from coin collection - $9,000 loss from automobile sale) will be subject to income tax.

Question 17

When the kiddie tax applies, the child need not file an income tax return because the child's income will be reported on the parents' return.

Accepted Answer

While the child's income may be reported on the parent's return under the kiddie tax rules, the child may still be required to file a separate tax return if their income exceeds the filing threshold.

Question 18

During 2017, Sarah had the following transactions: Sarah's AGI is:

A)$185,000.
B)$187,000.
C)$285,000.
D)$287,000.
E)$387,000.

Accepted Answer

The answer of During 2017, Sarah had the following transactions:...

Question 19

During 2017, Esther had the following transactions: Esther's AGI is:

A)$62,000.
B)$64,000.
C)$67,000.
D)$102,000.
E)$104,000.

Accepted Answer

The answer of During 2017, Esther had the following transactions:...

Question 20

Which of the following items, if any, is deductible?
A)Parking expenses incurred in connection with jury duty-taxpayer is a dentist.
B)Substantiated gambling losses (not in excess of gambling winnings) from state lottery.
C)Contributions to mayor's reelection campaign.
D)Speeding ticket incurred while on business.
E)Premiums paid on personal life insurance policy.

Accepted Answer

Gambling losses are deductible to the extent of gambling winnings. This means that if you have gambling winnings, you can deduct your losses up to the amount of your winnings on your tax return.

Quiz 3: Tax Formula and Tax Determination; an Overview of Property Transactions