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Exam 3: Computing the Tax

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Question 51

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A child who has unearned income of $1,900 or less cannot be subject to the kiddie tax.

A) True
B) False

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Question 52

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In 2012, Ed is 66 and single.If he has itemized deductions of $7,300, he should claim the standard deduction alternative.

A) True
B) False

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Question 53

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A decrease in a taxpayer's AGI could decrease the amount of charitable contribution that can be claimed.

The filing status of a taxpayer (e.g., single, head of household) must be identified before taxable income is determined.

Wilma, age 70 and single, is claimed as a dependent on her daughter's tax return.During 2012, she had interest income of $2,400 and $800 of earned income from baby sitting.Wilma's taxable income is:

Adjusted gross income (AGI) sets the ceiling or the floor for certain deductions.Explain and illustrate what this statement means.

Once they reach age 65, many taxpayers will switch from itemizing their deductions from AGI and start claiming the standard deduction.

Emma had the following transactions for 2012: What is Emma's AGI for 2012?

Sarah furnishes more than 50% of the support of her son and daughter-in-law who live with her.If the son and daughter-in-law file a joint return, Sarah cannot claim them as dependents.

An "above the line" deduction refers to a deduction for AGI.

Maude's parents live in another state and she cannot claim them as her dependents.If Maude pays their medical expenses, can she derive any tax benefit from doing so? Explain.

A child who is married can be subject to the kiddie tax.

Debby, age 18, is claimed as a dependent by her mother.During 2012, she earned $1,100 in interest income on a savings account.Debby's standard deduction is $1,400 ($1,100 + $300).

The Hutters filed a joint return for 2012.They provide more than 50% of the support of Carla, Melvin, and Aaron.Carla (age 18) is a cousin and earns $5,000 from a part-time job.Melvin (age 25) is their son and is a full-time law student.He received from the university a $3,800 scholarship for tuition.Aaron is a brother who is a citizen of Israel but resides in France.Carla and Melvin live with the Hutters.How many personal and dependency exemptions can the Hutters claim on their Federal income tax return?

For tax purposes, married persons filing separate returns are treated the same as single taxpayers.

Mr.Lee is a citizen and resident of Hong Kong, while Mr.Anderson is a citizen and resident of the U.S.In the taxation of income, Hong Kong uses a territorial approach, while the U.S.follows the global system.In terms of effect, explain what this means to Mr.Lee and Mr.Anderson.

A dependent cannot claim a personal exemption on his or her own return.

Which, if any, of the following statements relating to the standard deduction is correct?

Under the Federal income tax formula for individuals, the determination of adjusted gross income (AGI) follows that of taxable income (TI).

During the year, Kim sold the following assets: business auto for a $1,000 loss, stock investment for a $1,000 loss, and pleasure yacht for a $1,000 loss.Presuming adequate income, how much of these losses may Kim claim?