CHAPTER 3-TAX FORMULA AND TAXDETERMINATION AN OVERVIEW OF PROPERTY TRANSACTIONS1.Currently, the top Federal income tax rate in effect is the highest it has ever been.True          False2.As used in the income tax

CHAPTER 3–TAX FORMULA AND TAX

DETERMINATION; AN OVERVIEW OF PROPERTY TRANSACTIONS

 

1.Currently, the top Federal income tax rate in effect is the highest it has ever been.

True          False

2.As used in the income tax formula, gross income would not include the receipt of a loan the taxpayer obtained from a bank.

True          False

3.Under the income tax formula, a taxpayer must choose between deductions for AGI and the standard deduction.

True          False

4.An “above the line” deduction refers to a deduction for AGI.

True          False

5.Because they appear on page 1 of Form 1040, itemized deductions are also referred to as “page 1 deductions.”

True          False

6.Most exclusions from gross income are not reported on Form 1040.

True          False

7.Once TI (taxable income) is determined, the taxpayer must make a choice between itemizing or claiming the standard deduction.

True          False

8.The filing status of a taxpayer (e.g., single, head of household) need not be identified until after taxable income is determined.

True          False

9.Lee, a citizen of Korea, is a resident of the U.S. Any income Lee receives from land he owns in Korea is subject to the U.S. income tax.

True          False

10.An increase in the amount of a taxpayer’s AGI will not affect the amount of medical expenses allowed as a deduction.

True          False

11.Since an abandoned spouse is considered to be unmarried with dependents, the standard deduction for head of household can be used.

True          False

12.The additional standard deduction for age and blindness is the same amount for single as for married taxpayers.

True          False

13.The basic and additional standard deductions are subject to an annual adjustment for inflation.

True          False

14.A taxpayer who itemizes his deductions from AGI can claim the property taxes on his personal residence as a deduction.

True          False

15.It is possible for an individual taxpayer to claim more than one type of standard deduction.

True          False

16.Tad claims his 70-year-old mother as a dependent. The mother may not claim an additional standard deduction for her age.

True          False

17.In 2010, Ed is 66 and single. If he has itemized deductions of $6,200, he should claim the standard deduction alternative.

True          False

18.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 2010 is $14,700 ($11,400 + $1,100 + $1,100 + $1,100).

True          False

19.Derek, age 46, is a surviving spouse. If he has itemized deductions of $11,600 for 2010, Derek should not claim the standard deduction.

True          False

20.Buddy and Hazel are ages 72 and 71 and file a joint return. If they have itemized deductions of $13,500 for 2010, they should not claim the standard deduction.

True          False

21.Clara, age 68, claims head of household filing status. If she has itemized deductions of $9,500 for 2010 , she should claim the standard deduction.

True          False

22.Monique is a citizen of the U.S. and a resident of Canada. If she files a U.S. income tax return, Monique can claim the standard deduction.

True          False

23.Dan and Donna are husband and wife and file separate returns for the year. Even if Dan itemizes his deductions from AGI, Donna can still claim the standard deduction.

True          False

24.Logan, an 80-year-old widower, dies on January 2, 2010. Even though he lived for only two days, on his final income tax return for 2010, the full basic and additional standard deductions can be claimed.

True          False

25.Benjamin, age 16, is claimed as a dependent by his parents. During 2010, he earned $700 at a car wash. Benjamin’s standard deduction is $1,250 ($950 + $300).

True          False

26.Debby, age 18, is claimed as a dependent by her mother. During 2010, she earned $1,100 in interest income on a savings account. Debby’s standard deduction is $1,400 ($1,100 + $300).

True          False

27.Katrina, age 16, is claimed as a dependent by her parents. During 2010, she earned $5,500 as a checker at a grocery store. Her standard deduction is $5,800 ($5,500 earned income + $300).

True          False

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

True          False

29.When separate income tax returns are filed by married taxpayers, one spouse cannot claim the other spouse as an exemption.

True          False

30.Butch and Minerva are divorced in December of 2010. Since they were not married at the end of the year, they are considered not married for 2010.

True          False

31.For the year a spouse dies, the surviving spouse is considered married for the entire year for income tax purposes.

True          False

32.In determining whether the support test is met for dependency exemption purposes, only the taxable portion of a scholarship is considered.

True          False

33.Albert buys his mother a used car. For purposes of meeting the support test, Albert cannot count the cost of the used car.

True          False

34.Even if the individual does not spend funds that have been received from another source (e.g., interest on municipal bonds), the unexpended amounts are considered for purposes of the support test.

True          False

35.Using borrowed funds from a mortgage on her home, Leah provides 52% of her own support, while her sons furnished the rest. Leah can be claimed as a dependent under a multiple support agreement.

True          False

36.Roy and Linda were divorced in 2009. The divorce decree awards custody of their children to Linda but is silent as to who is entitled to claim them as dependents. If Roy furnished more than half of their support, he can claim them as dependents in 2010.

True          False

37.In 2010, Hal furnishes more than half of the support of his ex-wife and her father, neither of whom lives with him. The divorce occurred in 2009. Hal may claim the father-in-law but not the ex-wife as dependents.

True          False

38.After her divorce, Hope continues to support her ex-husband’s sister, Cindy, who does not live with her. Hope cannot claim Cindy as a dependent.

True          False

39.Darren, age 20 and not disabled, earns $4,500 during 2010. Darren’s parents cannot claim him as a dependent unless he is a full-time student.

True          False

40.Keith, age 17 and single, earns $4,000 during 2010. Keith’s parents can claim him as a dependent even if he does not live with them.

True          False

41.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.

True          False

42.Kim, a resident of Oregon, supports his parents who are residents of Canada but citizens of Korea. Kim cannot claim his parents as dependents.

True          False

43.Carolyn lives in New York and supports her niece who is a Canadian citizen that resides in Quebec, Canada. Carolyn may claim her niece as a dependent.

True          False

44.Stealth taxes are directed at higher income taxpayers.

True          False

45.The IRS facilitates the filing of income tax returns by persons in the U.S. illegally through the issuance of ITINs.

True          False

46.An individual taxpayer uses a fiscal year February 1-January 31. The due date of this taxpayer’s Federal income tax return is June 15 of each tax year.

True          False

47.Surviving spouse filing status begins in the year in which the deceased spouse died.

True          False

48.In January 2010, Jake’s wife dies and he does not remarry. For tax year 2010, Jake may not be able to use the filing status available to married persons filing joint returns.

True          False

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

True          False

50.Katelyn is divorced and maintains a household in which she and her daughter, Crissa, live. Crissa, age 22, earns $11,000 during 2010 as a model. Katelyn does not qualify for head of household filing status.

True          False

51.Ed is divorced and maintains a home in which he and a dependent friend live. Ed qualifies for head of household filing status.

True          False

52.In terms of income tax consequences, abandoned spouses are not treated the same way as married persons filing separate returns.

True          False

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

True          False

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

True          False

55.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.

True          False

56.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.

True          False

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

True          False

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

True          False

59.In 2010, Warren 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, $1,000 is subject to income tax.

True          False

60.In some cases, the tax on long-term capital gains can be as low as 0 %.

True          False

61.Gain on the sale of collectibles held for more than 12 months is subject to tax at a rate no higher than 28 %.

True          False

62.For 2010, 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.

True          False

 

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