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Exam 3: Tax Formula and Tax Determination an Overview of Property Transactions

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Question 1

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During the current year,Doris received a large gift from her parents and a sizeable inheritance from an uncle.She also paid premiums on an insurance policy on her life.Doris is confused because she cannot find any place on Form 1040 to report these items.Explain.

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Gifts and inheritances are exclusions fr...

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Question 2

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DeWayne is a U.S.citizen and resident.He spends much of each year in the United Kingdom on business.He is married to Petula,a U.K.citizen and resident of London.DeWayne has heard that it is possible that he can file a joint income tax return for U.S.purposes.If this is so,what are the constraints he should consider in making any such decision?

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The election to file a joint return has the effect of treating Petula as a U.S.resident.Unfortunately,this places Petula on the U.S.global approach to taxation.If Petula has considerable income of her own,the election makes this income subject to U.S.taxation which may be disadvantageous.

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A taxpayer who itemizes must use Form 1040,and cannot use Form 1040EZ or Form 1040A.

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 dependency exemption deduction.Are the Martins' concerns justified? Explain.

During 2016,Addison has the following gains and losses: LTCG $10,000 LTCL 3,000 STCG 2,000 STCL 7,000 ​ a.How much is Addison's tax liability if she is in the 15% tax bracket? b.If her tax bracket is 33% (not 15%)?

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

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

Pedro is married to Consuela,who lives with him.Both are U.S.citizens and residents of Nebraska.Pedro furnishes all of the support of his parents,who are citizens and residents of Mexico.He also furnishes all of the support of Consuela's parents,who are citizens and residents of El Salvador.Consuela has no gross income for the year.If Pedro files as a married person filing separately,how many personal and dependency exemptions can he claim on his return?

Monique is a resident of the U.S.and a citizen of France.If she files a U.S.income tax return,Monique cannot claim the standard deduction.

Match the statements that relate to each other. Note: Choice l. may be used more than once. a.Not available to 65-year old taxpayer who itemizes. b.Exception for U.S. citizenship or residency test (for dependency exemption purposes). c.Largest basic standard deduction available to a dependent who has no earned income. d.Considered for dependency exemption purposes. e.Qualifies for head of household filing status. f.A child (age 15) who is a dependent and has only earned income. g.Considered in applying gross income test (for dependency exemption purposes). h.Not considered in applying the gross income test (for dependency exemption purposes). i.Unmarried taxpayer who can use the same tax rates as married persons filing jointly. j.Exception to the support test (for dependency exemption purposes). k.A child (age 16) who is a dependent and has only unearned income of $4,500. l.No correct match provided. -Scholarship funds for tuition

During 2016,Jackson had the following capital gains and losses: Gain from the sale of coin collection (held three years) $12,000 Gain from the sale of land held as an investment for six years 9,000 Gain from the sale of stock held as an investment (held for 10 months) 3,000 ​ a.How much is Jackson's tax liability if he is in the 15% tax bracket? b.If his tax bracket is 33% (not 15%)?

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.

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

Match the statements that relate to each other. Note: Choice l. may be used more than once. a.Not available to 65-year old taxpayer who itemizes. b.Exception for U.S. citizenship or residency test (for dependency exemption purposes). c.Largest basic standard deduction available to a dependent who has no earned income. d.Considered for dependency exemption purposes. e.Qualifies for head of household filing status. f.A child (age 15) who is a dependent and has only earned income. g.Considered in applying gross income test (for dependency exemption purposes). h.Not considered in applying the gross income test (for dependency exemption purposes). i.Unmarried taxpayer who can use the same tax rates as married persons filing jointly. j.Exception to the support test (for dependency exemption purposes). k.A child (age 16) who is a dependent and has only unearned income of $4,500. l.No correct match provided. -Additional standard deduction

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

Contrast the tax consequences resulting from the following filing status situations: a.Married filing jointly versus married filing separately. b.Married filing separately versus single filing separately. c.Married filing separately versus abandoned spouse status.

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.

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

Clara,age 68,claims head of household filing status.If she has itemized deductions of $10,500 for 2016,she should not claim the standard deduction.

For the past few years,Corey's filing status has been as follows: 2012 (married/joint);2013 (married/separate);2014 (surviving spouse);2015(surviving spouse);and 2016 (head of household).Explain what probably has happened.