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Exam 3: Computing the Tax

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Question 61

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In early 2019, Ben sold a yacht, held for 9 months and for pleasure, for a $5,000 gain. Concerned about offsetting the gain before year-end, Ben is considering selling one of the following-each of which would yield a $5,000 loss: ∙ Houseboat used for recreation. ∙ Truck used in business. ∙ Stock investment held for 13 months. Evaluate each choice.

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The sale of the houseboat produces no be...

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Question 62

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Regarding the tax formula and its relationship to Form 1040, which of the following statements, if any, 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 "Schedule 1 deduction" refers to a deduction for AGI.
D) A taxpayer's AGI amount appears both at the bottom of page 1 and at the top of page 2 of Form 1040.
E) None of these.

F) C) and E)
G) A) and B)

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Question 63

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Match the statements that relate to each other. Note: Choice k. may be used more than once. -Relationship test (for dependency exemption purposes)

Hunter (age 68) and his wife Jenelle (age 70) file a joint return. They furnish all of the support of Luther (Hunter's 90-year old father) who lives with them. In 2019, the couple received $6,000 of interest income on City of Chicago bonds and interest and dividend income on corporate stocks and bonds of $50,000. Compute Hunter and Jenelle's taxable income for 2019.

Millie, age 80, is supported during the current year as follows: $\begin{array}{ll}&\text { Percent of } \\&\text { Support }\\\text { Weston (a son) } & 20 \% \\\text { Faith (a daughter) } & 35 \% \\\text { Jake (a cousin) } & 25 \% \\\text { Brayden (unrelated close family friend) } & 20 \%\end{array}$ During the year, Millie lives in an assisted living facility. Under a multiple support agreement, indicate which parties can qualify to claim Millie as a dependent.

Jason and Peg are married and file a joint return. Both are over 65 years of age and Jason is blind. Their standard deduction for 2019 is $28,300 ($24,400 + $1,300 + $1,300 + $1,300).

List at least three exceptions to the application of the kiddie tax.

Match the statements that relate to each other. Note: Choice k. may be used more than once. -Additional standard deduction

During 2019, Madison had salary income of $80,000 and the following capital transactions: $\begin{array} { l r } \text { LTCG } & \$ 13,000 \\\text { LTCL } & 15,000 \\\text { STCG } & 13,000 \\\text { STCL } & 6,000\end{array}$ How are these transactions handled for income tax purposes?

The Martins have a teenage son who has become an accomplished bagpiper. With proper promotion and scheduling, the son has good income potential by charging for his services at special events (particularly funerals). However, the Martins are fearful that the income could generate a kiddie tax and cause them the loss of a dependent tax credit. Are the Martins' concerns justified? Explain.

Debby, age 18, is claimed as a dependent by her mother. During 2019, Debby earned $1,200 in interest income on a savings account. Her standard deduction is $1,550 ($1,200 + $350).

Perry, a single taxpayer, has taxable income of $178,000 and is in the 32% tax bracket. During 2019, he had the following capital asset transactions: $\begin{array}{lr}\text { Gain from the sale of a stamp collection (held for } 10 \text { years) } & \$ 30,000 \\\text { Gain from the sale of an investment in land (held for } 4 \text { years) } & 10,000 \\\text { Gain from the sale of stock investment (held for } 8 \text { months) } & 4,000\end{array}$ Perry's tax consequences from these gains are as follows:

Harpreet, whose husband died in December 2018, maintains a household in which her dependent mother lives. Which (if any) of the following is her filing status for the tax year 2019? (Note: Harpreet is the executor of her husband's estate.)

Ellen, age 12, lives in the same household with her father, grandfather, and uncle. The cost of maintaining the household is provided by her grandfather (40%) and her uncle (60%) . Disregarding tie-breaker rules, Ellen is a qualifying child as to:

The major advantage of being classified as an abandoned spouse is that the taxpayer is treated for tax purposes as being single and not married. This means that an abandoned spouse can use the more favorable tax rates available to single persons than those available to married persons filing separately. Comment on the accuracy of this conclusion.

In which of the following situations, if any, may the individual not be claimed as a dependent of the taxpayer?

Helen, age 74 and a widow, is claimed as a dependent by her daughter. For 2019, Helen had income as follows: $2,500 interest on municipal bonds; $3,200 Social Security benefits; $3,000 income from a part-time job; and $2,800 dividends on stock investments. What is Helen's taxable income for 2019?

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.

The Hutters filed a joint return for 2019. They provide more than 50% of the support of Carla, Ellie, and Aaron. Carla (age 18) is a cousin and earns $2,800 from a part-time job. Ellie (age 25) is their daughter and is a full-time law student. She received a $7,500 scholarship for tuition from her law school. Aaron is a brother who is a citizen of Israel but resides in France. Carla and Ellie live with the Hutters. How many dependents can the Hutters claim?

The additional standard deduction for age and blindness is greater for married taxpayers than for single taxpayers.