CHAPTER 3-TAX FORMULA AND TAXDETERMINATION AN OVERVIEW OF PROPERTY TRANSACTIONS63.In terms of the tax formula applicable to individual taxpayers, which, if any, of the following statements is correct?A.The formula does not apply if a taxpayer elects to claim the standard deduction.B.In arriving at AGI, p

CHAPTER 3–TAX FORMULA AND TAX

DETERMINATION; AN OVERVIEW OF PROPERTY TRANSACTIONS

63.In terms of the tax formula applicable to individual taxpayers, which, if any, of the following statements is correct?

A.The formula does not apply if a taxpayer elects to claim the standard deduction.

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.In arriving at taxable income, a taxpayer must choose between the standard deduction and deductions for AGI.

E.None of the above.

64.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 for AGI.

C.A “page 1 deduction” refers to a deduction from 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 the above.

65.Which of the following items, if any, is deductible?

A.Parking expenses incurred in connection with jury duty—taxpayer is a dentist.

B.Contributions to mayor’s reelection campaign.

C.Substantiated gambling losses (not in excess of gambling winnings) incurred on a vacation to Reno.

D.Speeding ticket incurred while on business.

E.Premiums paid on personal life insurance policy.

65.Which, if any, of the following is a deduction from AGI?

A.Alimony payments.

B.Child support payments.

C.Funeral expenses.

D.Loss on the sale of a personal residence.

E.Interest on home mortgage.

66.Which, if any, of the following is a deduction for AGI?

A.Alimony payments.

B.Interest on home mortgage.

C.Unreimbursed employee expenses.

D.Charitable contributions.

E.None of the above.

67.Which, if any, of the statements regarding the standard deduction is correct?

A.The basic standard deduction is indexed for inflation but the additional standard deduction is not.

B.Not available to taxpayers who choose to deduct their personal and dependency exemptions.

C.Not available to taxpayers who choose to claim their deduction for AGI.

D.Some taxpayers may qualify for two additional standard deductions.

E.None of the above.

68.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 spouses file separate returns, both spouses must claim the standard deduction (rather than itemize their deductions from AGI).

C.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).

D.If a taxpayer is claimed as a dependent of another, no basic standard deduction is allowed.

E.None of the above.

69.During 2010, Marvin had the following transactions:

Salary             $50,000 Bank loan (proceeds used to buy personal auto)       10,000

Alimony paid 6,000

Child support paid         12,000

Gift from aunt                20,000

Marvin’s AGI is:

A.$32,000.

B.$38,000.

C.$44,000.

D.$56,000.

E.$64,000.

70.During 2010, Anna had the following transactions:

Salary             $70,000 Interest income on City of Denver bonds  2,000

Inheritance from uncle   40,000

Contribution to traditional IRA      5,000

Lottery losses 3,000

Anna’s AGI is:

A.$62,000.

B.$65,000.

C.$67,000.

D.$102,000.

E.$104,000.

71.During 2010, Justin had the following transactions:

Salary $ 80,000
Interest income on IBM bonds 2,000
Damages for personal injury (car accident) 200,000
Punitive damages (same car accident) 100,000
Cash dividends from Chevron Corporation stock Justin’s AGI is:

A.$185,000.

B.$187,000.

C.$285,000.

D.$287,000.

E.$385,000.

73. In 2010, Sylvia had the following transactions:

5,000
Salary $90,000
Capital loss from a stock investment (4,000)
Moving expense to change jobs (11,000)

Received repayment of $20,000 loan she made to her brother in 2006 (includes interest of $2,000)

22,000

State income taxes          (5,000)

Sylvia’s AGI is:

A.$73,000.

B.$77,000.

C.$78,000.

D.$81,000.

E.$89,000.

74.Merle, age 17, is claimed by her parents as a dependent. During 2010, she had interest income from a bank savings account of $2,000 and income from a part-time job of $4,200. Merle’s taxable income is:

A.$4,200 – $4,500 = $0.

B.$6,200 – $5,700 = $500.

C.$6,200 – $4,500 = $1,700.

D.$6,200 – $950 = $5,250.

E.None of the above.

75.Tony, age 15, is claimed as a dependent by his grandmother. During 2010, Tony had interest income from Boeing Corporation bonds of $1,000 and earnings from a part-time job of $700. Tony’s taxable income is:

A.$0.

B.$1,700 – $700 – $950 = $50.

C.$1,700 – $1,000 = $700.

D.$1,700 – $950 = $750.

E.None of the above.

76.Wilma is a widow, age 80 and blind, who is claimed as a dependent by her son. During 2010, she received $4,800 in Social Security benefits, $2,200 in bank interest, and $1,800 in cash dividends from stocks. Wilma’s taxable income is:

A.$4,000 – $950 – $2,800 = $250.

B.$4,000 – $2,800 = $1,200.

C.$4,000 – $950 – $1,400 = $1,650.

D.$8,800 – $950 – $2,800 = $5,050.

E.None of the above.

77.Muriel, age 70 and single, is claimed as a dependent on her daughter’s tax return. During 2010, she had interest income of $2,400 and $800 of earned income from baby sitting. Muriel’s taxable income is:

A.$700.

B.$850.

C.$1,800.

D.$2,250.

E.None of the above.

78.Kyle and Liza are married and under 65 years of age. During 2010, they furnish more than half of the support of their 19-year old daughter, May, who lives with them. May earns $15,000 from a part-time job, most of which she sets aside for future college expenses. Kyle and Liza also provide more than half of the support of Kyle’s cousin who lives with them. Liza’s father, who died on January 3, 2010, at age 80, has for many years qualified as their dependent. How many personal and dependency exemptions should Kyle and Liza claim?

A.Two.

B.Three.

C.Four.

D.Five.

E.None of the above.

79.Evan and Eileen Carter are husband and wife and file a joint return for 2010. Both are under 65 years of age. They provide more than half of the support of their daughter, Pamela (age 25), who is a full-time medical student. Pamela receives a $5,000 scholarship covering her room and board at college. They furnish all of the support of Belinda (Evan’s grandmother), who is age 70 and lives in a nursing home. They also support Peggy (age 66), who is a friend of the family and lives with them. How many personal and dependency exemptions may the Carters claim?

A.Two.

B.Three.

C.Four.

D.Five.

E.None of the above.

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

A.A former spouse who lives with the taxpayer (divorce took place last year).

B.A stepmother who does not live with the taxpayer.

C.A married daughter who lives with the taxpayer.

D.A half brother who does not live with the taxpayer and is a citizen and resident of Mexico.

E.A cousin who does not live with the taxpayer.

81.During 2010, Jen (age 66) furnished more than 50% of the support of the following persons:

·     Jen’s current husband who has no income and is not claimed by someone else as a dependent.

·     Jen’s stepson (age 18) who lives with her and earns $6,000 as a dance instructor. He dropped out of school a year ago.

·     Jen’s ex-husband who does not live with her. The divorce occurred two years ago.

·     Jen’s former brother-in-law who does not live with her.

Presuming all other dependency tests are met, on a separate return how many personal and dependency exemptions may Jen claim?

A.Two.

B.Three.

C.Four.

D.Five.

E.None of the above.

82.A qualifying child cannot include:

A.A nonresident alien.

B.A married son who files a joint return.

C.A daughter who is away at college.

D.A grandmother.

E.A brother who is 28 years of age and disabled.

83.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:

A.All parties involved (i.e., father, grandfather, and uncle).

B.Only her grandfather and uncle.

C.Only her uncle.

D.Only her father.

E.None of the above.

84.Millie, age 80, is supported during the current year as follows:

Percent of Support

Weston (a son)               10 %

Faith (a daughter)           35 %

Jake (a cousin)               35 %

Brayden (unrelated close family friend)         20 %

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.

A.Weston, Faith, Jake, and Brayden.

B.Faith and Brayden.

C.Weston and Faith.

D.Faith, Jake, and Brayden.

E.None of the above.

85.The Hutters filed a joint return for 2010. 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?

A.Two.

B.Three.

C.Four.

D.Five.

E.None of the above.

86.For the qualifying relative rule (for dependency exemption purposes):

A.The dependent must be under age 19 or a full-time student under age 24.

B.The dependent need not reside with the taxpayer claiming the exemption.

C.The dependent must be related to the taxpayer claiming the exemption.

D.The dependent must be a citizen or resident of the U.S.

E.None of the above.

87.Kyle, whose wife died in December 2007, filed a joint tax return for 2007. He did not remarry, but has continued to maintain his home in which his two dependent children live. What is Kyle’s filing status as to 2010 ?

A.Head of household.

B.Surviving spouse.

C.Single.

D.Married filing separately.

E.None of the above.

88.Emily, whose husband died in December 2010, maintains a household in which her dependent daughter lives. Which (if any) of the following is her filing status for the tax year 2010? (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.

89.Which of the following taxpayers may file as a head of household in 2010 ?

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 2010 working at a fast food restaurant and is saving his money to attend college in 2011. Dan lives in Tammy’s home.

Joe’s wife left him late in December of 2009. No legal action was taken and Joe has not heard from her in 2010. Joe supported his 6-year-old son, who lived with him throughout 2010.

A.Ron only.

B.Tammy only.

C.Joe only.

D.Ron and Joe only.

E.Ron, Tammy, and Joe.

90.Nelda is married to Chad, who abandoned her in early June of 2010. 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 2010 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.

91.Arnold is married to Sybil, who abandoned him in 2008. 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 $20,000 each year. For tax year 2010, Arnold’s filing status is:

A.Married, filing jointly.

B.Married, filing separately.

C.Head of household.

D.Surviving spouse.

E.Single.

92.In which, if any, of the following situations will the kiddie tax not apply?

A.The child has unearned income of less than $3,650.

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

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

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

E.None of the above.

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

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

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

E.None of the above.

94.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.

95.Perry is in the 33% tax bracket. During 2010, 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% ´ $10,000) + (28% ´ $30,000) + (33% ´ $4,000).

B.(15% ´ $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.

96.Kirby is in the 15% tax bracket and had the following capital asset transactions during 2010:

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.(0% ´ $10,000) + (15% ´ $13,000).

C.(15% ´ $13,000) + (28% ´ $11,000).

D.(15% ´ $23,000).

E.None of the above.

97.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 (11,000)
Loss on sale of camper (purchased 4 years ago and used for family vacations)

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.

98. During 2010, Trevor has the following capital transactions:

(2,000)
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 2011 of $3,000.

D.LTCG of $2,000.

E.None of the above.

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