Questions and Answers of Income Tax Fundamentals

Jennifer is divorced and files a head of household tax return claiming her children, ages 4, 7, and 17, as dependents. Her adjusted gross income for 2018 is $211,200. What is Jennifer’s total child
Your supervisor has asked you to research a potential tax deduction for a client, Nancy Fradette. Nancy is a seat-filler at a number of the award shows that are filmed in the greater Los Angeles
Margaret started her own business in the current year and will report a profit for her first year. Her results of operations are as follows: Gross income
David and Darlene Jasper have one child, Sam, who is 6 years old (birthdate July 1, 2012). The Jaspers reside at 4639 Honeysuckle Lane, Los Angeles, CA 90248. David’s Social Security number is
Russ and Linda are married and file a joint tax return claiming their three children, ages 4, 7, and 18, as dependents. Their adjusted gross income for 2018 is $105,300. What is Russ and Linda’s
Married taxpayers Otto and Ruth are both self-employed. Otto earns $352,000 of self employment income and Ruth has a self-employment loss of $13,500. How much 0.9 percent Medicare tax for high-income
Christine and Doug are married. In 2018, Christine earns a salary of $250,000 and Doug earns a salary of $50,000. They have no other income and work for the same employers for all of 2018. How much
Skylar is single and earns $410,000 in salary during 2018. What is the amount of 0.9 percent Medicare tax for high-income taxpayers that his employer must withhold from his wages? a.
Ann hires a nanny to watch her two children while she works at a local hospital. She pays the 19-year-old nanny $170 per week for 42 weeks during the current year. a. What is the employer’s
Sally hires a maid to work in her home for $280 per month. The maid is 25 years old and not related to Sally. During 2018, the maid worked 9 months for Sally. a. What is the amount of Social
Stewart Beauf is a self-employed surfboard maker in 2018. His Schedule C net income is $125,003 for the year. He also has a part-time job and earns $15,600 in wages subject to FICA taxes. Calculate
Which of the following employees would not be exempt from Social Security and Medicare taxes on wages paid for household work? a. The taxpayer’s 16-year-old daughter. b. The taxpayer’s
Bob employs a maid to clean his house. He pays her $1,040 during the current year. What is the proper tax treatment of the Social Security and Medicare tax for the maid? a. Bob is not required
For 2018, Roberta is a self-employed truck driver with earnings of $45,000 from her business. During the year, Roberta received $2,500 in interest income and dividends of $500. She also sold
Otto and Monica are married taxpayers who file a joint tax return. For the current tax year, they have AGI of $80,300. They have excess depreciation on real estate of $67,500, which must be added
Which of the following is not a tax preference or adjustment item for the individual alternative minimum tax computation? a. Depreciation of certain assets. b. State income taxes. c.
Generally, the tax rate that applies to the unearned income of a minor under the kiddie tax in 2018 is: a. The same as the parents’ tax rate. b. The same as the single taxpayer
Which of the following is not required to subject a taxpayer to the tax on unearned income of minors (kiddie tax) in 2018? a. Must be claimed as a dependent. b. 18 years of age or younger
Refer to the previous problem 8. If Stan’s parents elected to report Stan’s income on his parents’ return, what would the tax on Stan’s income be?
Brian and Kim have a 12-year-old child, Stan. For 2018, Brian and Kim have taxable income of $52,000, and Stan has interest income of $4,500. No election is made to include Stan’s income on Brian
Ken (birthdate July 1, 1987) and Amy (birthdate July 4, 1989) Booth have brought you the following information regarding their income, expenses, and withholding for the year. They are unsure which of
Geraldine is an accrual basis taxpayer who has the following transactions during the current calendar tax year: Accrued business income (except
A. Richard McCarthy (born 2/14/64; Social Security number 100-10-9090) and Christine McCarthy (born 6/1/1966; Social security number 101-21-3434) have a 19-year-old son (born 10/2/99 Social
Richard and Christine McCarthy have a 19-year-old son (born 10/2/99; Social Security number 555-55-1212), Jack, who is a full-time student at the University of Key West. Years ago, the McCarthys
During the 2018 tax year, Irma incurred the following expenses: Union dues..................................................................................$244 Tax return preparation
Pekoe sold stock to his sister Rose for $12,000, its fair market value. Pekoe bought the stock 5 years ago for $16,000. Also, Pekoe sold Earl (an unrelated party) stock for $6,500 that he bought 3
Which of the following entities is required to report on the accrual basis? a. An accounting firm operating as a Personal Service Corporation. b. A manufacturing business with $30 million
Amy is a calendar-year taxpayer reporting on the cash basis. Please indicate how she should treat the following items for 2018: a. She makes a deductible contribution to an IRA on April 15,
Income and loss from which of the following entities is passed through and taxed on the individual’s personal tax returns? a. S corporation.b. Partnershipc. Sole proprietord. All of the above
Barbara donates a painting that she purchased three years ago for $8,000, to a university for display in the president’s office. The fair market value of the painting on the date of the gift is
The Au Natural Clothing Corporation has changed its year-end from a calendar yearend to March 31, with permission from the IRS. The income for its short period from January 1 to March 31 is $24,000.
Charlie’s Green Lawn Care is a cash basis taxpayer. Charlie Adame, the sole proprietor, is considering delaying some of his December 2018 customer billings for lawn care into the next year. In
Which of the following items is deductible as a miscellaneous deduction on Schedule A? a. Investment expensesb. Gambling losses to the extent of gambling winningsc. Unreimbursed business
Which of the following is not deductible as a miscellaneous itemized deduction subject to the 2 percent of AGI floor in 2018? a. Tax preparation fees. b. Professional dues.c. Unreimbursed
Which of the following is not a possible limitation on the deduction of a personal casualty loss? a. The lesser of the fair market value of the property or the adjusted basis at the time of the
On January 3, 2018, Carey discovers his diamond bracelet has been stolen. The bracelet had a fair market value and adjusted basis of $7,500. Assuming Carey had no insurance coverage on the bracelet
Which of the following would typically be deductible as a casualty loss in 2018? a. Long-term damage to a home from termitesb. An automobile accident during the daily commutec. A theft of a big
In June of 2018, Maureen’s house is vandalized during a long-term power failure after a hurricane hit the city. The president of the United States declares Maureen’s city a disaster area as a
Which of the following gifts is a deductible contribution? a. A gift of $100 to a homeless personb. A $500 gift to the Democratic National Committeec. $1,000 spent on church bingo gamesd. A $200
In March of 2018, Thomas makes a $5,000 cash contribution to a public university. In that month, he also donates $20,000 to an organization subject to the 30 percent limitation. Thomas has adjusted
Jerry made the following contributions during 2018: His synagogue (by check)...............................................................$1,050 The Democratic Party (by
Which of the following will result in the recognition of gross income? a. Gail’s employer allows her to set aside $4,000 from her wages to cover the cost of daycare for Gail’s four-year old
How much of each of the following is taxable? a. Cheline, an actress, received a $6,400 gift bag for attending the Academy Awards Ceremony during 2018. b. Jon received a gold watch worth
For each of the following independent cases, indicate the amount of gross income that must be included on the taxpayer’s 2018 income tax return. a. Malchia won a $4,000 humanitarian award. $
Huihana receives a watch for achieving 20 years of employment with her employer. The watch cost the employer $225 and has a market value of $250 on the date awarded. Huihana is in the highest tax
Lola, age 67, began receiving a $1,000 monthly annuity in the current year upon the death of her husband. She received seven payments in the current year. Her husband contributed $48,300 to the
Sharon transfers to Russ a life insurance policy with a cash surrender value of $27,000 and a face value of $100,000 in exchange for real estate. Russ continues to pay the premiums on the policy
Amara has an annuity and over time has recovered her entire investment but it continues to pay her $450 per month. Amara should recognize how much of each monthly payment as gross income? a.
Greg died on July 1, 2018, and left Lea, his wife, a $45,000 life insurance policy which she elects to receive at $9,000 per year plus interest for 5 years. In the current year, Lea receives $9,500.
Harry’s wife Lila passes away in January of the current year. Fortunately, Lila had a $1 million life insurance policy. Harry elects to receive all $1 million in the current year and spends
Nomi is in the highest individual tax bracket and receives $500 in qualified dividends from Omega Corp. Nomi’s tax liability (not including any net investment income tax) with respect to these
How are qualified dividends taxed in 2018? Please give the rates of tax which apply to qualified dividends, and specify when each of these rates applies
Rebecca, a single taxpayer, owns a Series I U.S. Savings Bond that increased in value by $46 during the year. She makes no special election. How much income must Rebecca recognize this year? a.
Describe the methods that an individual taxpayer that holds Series I Bonds can use to recognize interest.
Interest from which of the following types of bonds is included in taxable income? a. State of California bond b. City of New Orleans bond c. Bond of the Commonwealth of Puerto
Sally and Charles Heck received the following Form 1099-DIV in 2018: The Hecks also received the following dividends and interest in 2018 (Forms 1099-DIV not shown): Assuming the Hecks file
Which of the following gifts would probably be held to be taxable to the person receiving the gift? a. One thousand dollars given to a taxpayer by his or her father b. An acre of land given
Vandell is a taxpayer in the 25 percent tax bracket. He invests in Otay Mesa Water District Bonds that pay 4.5 percent interest. What interest on a taxable bond would provide the same after-tax
Kelly receives a $40,000 scholarship to Ivy University. She uses $30,000 on tuition and books, $5,000 for a used car, and $5,000 for rent while at school. Kelly will recognize _______ gross
Arlen is required by his 2018 divorce agreement to pay alimony of $2,000 a month and child support of $2,000 a month to his ex-wife Jane. What is the tax treatment of these two payments for Arlen?
In June of 2018, Kevin inherits stock worth $125,000. During the year, he collects $5,600 in dividends from the stock. How much of these amounts, if any, should Kevin include in his gross income for
Ivanka and Jared are divorced in the current year. As part of the divorce settlement, Ivanka transfers a plot of land in Long Island, NY to Jared. Ivanka’s basis in the property was $20,000 and the
Gina receives a $2,900 distribution from her educational savings account. She uses $1,500 to pay for qualified higher education expenses and $1,400 on a vacation. Immediately prior to the
In 2018, Amy receives $8,000 (of which $3,000 is earnings) from a qualified tuition program. She does not use the funds to pay for tuition or other qualified higher education expenses. What amount is
For married taxpayers filing a joint return in 2018, at what AGI level does the phaseout limit for contributions to Qualified Tuition Programs start? a. $110,000 b. $190,000 c.
Karen is a wealthy retired investment advisor who is in the 35 percent tax bracket. She has a choice between investing in a high-quality municipal bond paying 5 percent or a high-quality corporate
Hillary gets divorced in 2016 and is required to pay her ex-spouse $200 per month until her son reaches 18 years of age in 7 years and $120 per month thereafter. How much of her 2018 payments are
Which of the following is a fringe benefit excluded from income? a. A mechanic at Denise’s employer, a car rental company, provides $1,000 of repair services to Denise’s personal car for
Linda and Richard are married and file a joint return for 2018. During the year, Linda, who works as an accountant for a national airline, used $2,100 worth of free passes for travel on the airline;
Malin is a married taxpayer and has three dependent children. Malin’s employer offers health insurance for employees and Malin takes advantage of the benefit for her entire family (her spouse’s
Which of the following types of income is tax exempt? a. Unemployment compensation b. Income earned illegally c. Dividends from foreign corporations d. Municipal bond
All of the following items are taxable to the taxpayer receiving them, except: a. Life insurance proceeds b. Unemployment compensation c. Embezzled funds d. Prizes e.
Jane is a roofing contractor. Jane’s friend needed a new roof but did not have the cash to pay. Jane’s friend instead paid with a used truck that Jane could use in her roofing business. The truck
Which of the following is not taxable for income tax purposes? a. Prizes b. Severance pay c. Gifts d. Partnership income e. All of the above are taxable
A. Ray and Maria Gomez have been married for 3 years. Ray is a propane salesman for Palm Oil Corporation and Maria works as a city clerk for the City of McAllen. Ray’s birthdate is February 21,
Beverly and Ken Hair have been married for 3 years. Beverly works as an accountant at Cypress Corporation. Ken is a full-time student at Southwest Missouri State University (SMSU) and also works
A. Leslie and Leon Lazo are married and file a joint return for 2018. Leslie’s Social Security number is 466-47-3311 and Leon’s is 467-74-4451. They live at 143 Snapdragon Drive, Reno, NV 82102.
What is the total dollar amount of personal and dependency exemptions which a married couple with one child and $80,000 of adjusted gross income would claim in 2018?
Access the Internet and go to www.irs.gov and select “News” in the upper right hand corner (on mobile devices, select “Menu” in the upper right hand corner and select “News”). Select
Jessica and Carl were married on July 1, 2018. What are their options for filing status for their 2018 taxes?
Melissa and Aaron are married taxpayers with taxable income of $105,000. a. When you calculate their tax liability, are you required to use the tax tables or the tax rate schedules, or does it
For each of the following cases, indicate the filing status for the taxpayer(s) for 2018 using the following legend:A. SingleB. Married filing a joint returnC. Married filing separate returnsD. Head
Determine from the tax table in Appendix A the amount of the income tax for each of the following taxpayers for 2018: Тахрауerls) Allen Boyd Caldwell Тахаble Income Income Tax Filing
Arthur is 65 years old and single. He supports his father, who is 90 years old, blind, and has no income. What is Arthur’s standard deduction? a. $12,000 b. $13,600 c.
For each of the following situations (none of the taxpayers claim dependents), indicate whether the taxpayer(s) is (are) required to file a tax return for 2018. Explain your answer. a. Helen is
Lyn, age 65, and Robert, age 66, are married and support Lyn’s father (no taxable income) and Robert’s mother, who has $2,200 of gross income. If they file a joint return for 2018, how many
Nicoula is a server at a La Jolla restaurant. Nicoula received $1,200 in unreported tips during 2018 and owes Social Security and Medicare taxes on these tips. Her total income for the year,
Margaret, age 65, and John, age 62, are married with a 23-year-old daughter who lives in their home. They provide over half of their daughter’s support, and their daughter earned $4,100 this year
Margaret and her sister support their mother and together provide 85 percent of their mother’s support. If Margaret provides 40 percent of her mother’s support: a. Her sister is the only one
Frank, age 35, and Joyce, age 34, are married and file a joint income tax return for 2018. Their salaries for the year total $84,600 and they have taxable interest income of $3,900. They have no
Glenda, a single taxpayer from Kansas, paid for more than one-half of the support for her mother, Dorothy. Dorothy did not live with Glenda in Kansas, but rather has lived in a nursing home in an
Jim, age 50, and Martha, age 49, are married with three dependent children. They file a joint return for 2018. Their income from salaries totals $49,500, and they received $10,125 in taxable
Joan, who was divorced in 2018, had filed a joint tax return with her husband in 2017. During 2018, she did not remarry and continued to maintain her home in which her five dependent children lived.
Ben is a single taxpayer with no dependents and is 32 years old. What is the minimum amount of income that he must have to be required to file a tax return for 2018? a. $4,150 b.
Jonathan is a 35-year-old single taxpayer with adjusted gross income in 2018 of $46,300. He uses the standard deduction and has no dependents. a. Calculate Jonathan’s taxable income. Please
Ramon, a single taxpayer with no dependents, has adjusted gross income for 2018 of $98,000 and his itemized deductions total $19,000. What taxable income will Ramon show in 2018? a.
Alicia, age 27, is a single, full-time college student. She earns $13,200 from a part time job and has taxable interest income of $1,450. Her itemized deductions are $845. Calculate Alicia’s
All of the following are itemized deductions in 2018 except: a. Charitable contributions b. Alimony paymentsc. State and local taxesd. Medical expenses e. All of the above are itemized
Ulysses and Penelope are married and file separate returns for 2018. Penelope itemizes her deductions on her return. Ulysses’ adjusted gross income was $17,400, his itemized deductions were $2,250.
Which of the following is a deduction for adjusted gross income in 2018? a. Personal casualty lossesb. Medical expensesc. Student loan interestd. Charitable contributionse. None of the above

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