CHAPTER 3 COMPUTING THE TAX

1. Which of the following characteristics correctly describes the procedure for the phaseout of exemptions?

a. The threshold amounts are different and depend on filing status (e.g., joint return, single).

b. The threshold amounts are indexed for inflation each year.

c. The phaseout procedure is known as a “stealth tax.”

d. For the phaseout procedure to be applied, a taxpayer’s AGI must exceed the threshold amount.

e. All of the above.

2. Regarding the rules applicable to filing of income tax returns, which, if any, of the following is an incorrect statement:

a. Married persons who file joint returns cannot later (after the due date of the return) substitute separate returns.

b. Married persons who file separate returns can later (after the due date of the return) substitute a joint return.

c. The usual test as to when a taxpayer must file a return is based on the total of the following: personal exemption + basic standard deduction + both additional standard deductions.

d. Special filing requirement rules exist for taxpayers who are claimed as dependents of another.

e. None of the above.

.

3. Kyle, whose wife died in December 2011, filed a joint tax return for 2011. He did notremarry, but has continued to maintain his home in which his two dependent children live. What is Kyle’s filing status as to 2014?

a. Head of household.

b. Surviving spouse.

c. Single.

d. Married filing separately.

e. None of the above.

.

4. Emily, whose husband died in December 2013, maintains a household in which her dependent mother lives. Which (if any) of the following is her filing status for the tax year 2014? (Note: Emily is the executor of her husband’s estate.)

a. Single.

b. Married, filing separately.

c. Surviving spouse.

d. Head of household.

e. Married, filing jointly.

5. Which of the following taxpayers may file as a head of household in 2014?

Ron provides all the support for his mother, Betty, who lives by herself in an apartment in Fort Lauderdale. Ron pays the rent and other expenses for the apartment and properly claims his mother as a dependent.

Tammy provides over one-half the support for her 18-year old brother, Dan. Dan earned $4,200 in 2014 working at a fast food restaurant and is saving his money to attend college in 2015. Dan lives in Tammy’s home.

Joe’s wife left him late in December of 2013. No legal action was taken and Joe has not heard from her in 2014. Joe supported his 6-year-old son, who lived with him throughout 2014.

a. Ron only.

b. Tammy only.

c. Joe only.

d. Ron and Joe only.

e. Ron, Tammy, and Joe.

.

6. Nelda is married to Chad, who abandoned her in early June of 2014. She has not seen or communicated with him since then. She maintains a household in which she and her two dependent children live. Which of the following statements about Nelda’s filing status in 2014 is correct?

a. Nelda can use the rates for single taxpayers.

b. Nelda can file a joint return with Chad.

c. Nelda can file as a surviving spouse.

d. Nelda can file as a head of household.

e. None of the above statements is appropriate.

7. Arnold is married to Sybil, who abandoned him in 2013. He has not seen or communicated with her since April of that year. He maintains a household in which their son, Evans, lives. Evans is age 25 and earns over $6,000 each year. For tax year 2014, Arnold’s filing status is:

a. Married, filing jointly.

b. Head of household.

c. Married, filing separately.

d. Surviving spouse.

e. Single.

8. Regarding the Tax Tables applicable to the Federal income tax, which of the following statements is correct?

a. For any one year, the Tax Tables are issued by the IRS after the Tax Rate Schedules.

b. The Tax Tables will always yield the same amount of tax as the Tax Rate Schedules.

c. Taxpayers can elect as to whether the use the Tax Tables or the Tax Rate Schedules.

d. The Tax Tables can be used by an estate but not by a trust.

e. No correct answer given.

9. In which, if any, of the following situations will the kiddie tax notapply?

a. The child is married but does not file a joint return.

b. The child has unearned income of $2,000 or less.

c. The child has unearned income that exceeds more than half of his (or her) support.

d. The child is under age 24 and a full-time student.

e. None of the above.

.

10. Which, if any, of the following is a correct statement relating to the kiddie tax?

a. If the parents are divorced, the income of the noncustodial parent is used to determine the allocable parental tax.

b. The components for the application of the kiddie tax are not subject to adjustment for inflation.

c. If the kiddie tax applies, the parents must include the income of the child on their own income tax return.

d. The kiddie tax does not apply if both parents of the child are deceased.

e. None of the above.

11. 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?

a. $0.

b. $1,000.

c. $2,000.

d. $3,000.

e. None of the above.

12. Perry is in the 33% tax bracket. During 2014, he had the following capital asset transactions:

Gain from the sale of a stamp collection (held for 10 years)	$30,000
Gain from the sale of an investment in land (held for 4 years)	10,000
Gain from the sale of stock investment (held for 8 months)	4,000

Perry’s tax consequences from these gains are as follows:

a.	(15%´ $30,000) + (33%´ $4,000).
b.	(15%´ $10,000) + (28%´ $30,000) + (33%´ $4,000).
c.	(0%´ $10,000) + (28%´ $30,000) + (33%´ $4,000).
d.	(15%´ $40,000) + (33%´ $4,000).
e.	None of the above.

.

13. Kirby is in the 15% tax bracket and had the following capital asset transactions during 2014:

Long-term gain from the sale of a coin collection	$11,000
Long-term gain from the sale of a land investment	10,000
Short-term gain from the sale of a stock investment	2,000

Kirby’s tax consequences from these gains are as follows:

a.	(5%´ $10,000) + (15%´ $13,000).
b.	(15%´ $13,000) + (28%´ $11,000).
c.	(0%´ $10,000) + (15%´ $13,000).
d.	(15%´ $23,000).
e.	None of the above.

14. For the current year, David has salary income of $80,000 and the following property transactions:

Stock investment sales—
Long-term capital gain	$ 9,000
Short-term capital loss	(12,000)
Loss on sale of camper (purchased 4 years ago and used for family vacations)	(2,000)

What is David’s AGI for the current year?

a. $76,000.

b. $77,000.

c. $78,000.

d. $89,000.

e. None of the above.

15. During 2014, Trevor has the following capital transactions:

LTCG	$ 6,000
Long-term collectible gain	2,000
STCG	4,000
STCL	10,000

After the netting process, the following results:

a. Long-term collectible gain of $2,000.

b. LTCG of $6,000, Long-term collectible gain of $2,000, and a STCL of $6,000.

c. LTCG of $6,000, Long-term collectible gain of $2,000, and a STCL carryover to 2015 of $3,000.

d. LTCG of $2,000.

e. None of the above.

16. Emily had the following transactions during 2014:

Salary		$90,000
Interest income on bonds—
Issued by City of Nashville	$4,000
Issued by Chevron Corporation	5,000	9,000
Alimony received		5,000
Child support received		20,000
City and state income taxes paid		(5,000)
Bank loan obtained to pay for car purchase		15,000

What is Emily’s AGI for 2014?

.

17. Edgar had the following transactions for 2014:

Salary		$ 80,000
Alimony paid		(4,000)
Recovery from car accident—
Personal injury damages	$40,000
Punitive damages	70,000	110,000
Gift from parents		20,000
Property sales—
Loss on sale of boat (used for pleasure and owned 4 years)	($ 4,000)
Gain on sale of ADM stock (held for 10 months as an investment)	4,000	(–0–)

What is Edgar’s AGI for 2014?

18. Taylor had the following transactions for 2014:

Salary		$ 85,000
Moving expenses incurred to change jobs		(12,000)
Inheritance received from deceased uncle		300,000
Life insurance proceeds from policy on uncle’s life (Taylor was named the beneficiary)		200,000
Cash prize from church raffle		3,000
Payment of church pledge		(4,500)

What is Taylor’s AGI for 2014?

.

19. In 2014, Tom is single and has AGI of $50,000. He is age 70, has no dependents, and has itemized deductions (i.e., fromAGI) of $7,000. Determine Tom’s taxable income for 2014.

20. Warren, age 17, is claimed as a dependent by his father. In 2014, Warren has dividend income of $1,500 and earns $400 from a part-time job.

a. What is Warren’s taxable income for 2014?

b. Suppose Warren earned $1,200 (not $400) from the part­time job. What is Warren’s taxable income for 2014?