Questions and Answers of Income Tax Fundamentals

Which of the following is a deduction for adjusted gross income in 2020?a. Personal casualty lossesb. Medical expensesc. Student loan interestd. Mortgage intereste. None of the above
Marco and Tatiana are married and file separate returns for 2020. Tatiana itemizes her deductions on her return. Marco’s adjusted gross income was $18,000, his itemized deductions were $2,400.
All of the following are itemized deductions in 2020 except:a. Charitable contributionsb. Deductible IRA contributionsc. State and local taxesd. Medical expensese. All of the above are itemized
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
Jonathan is a 35-year-old single taxpayer with adjusted gross income in 2020 of $47,000. He uses the standard deduction and has no dependents. a. Calculate Jonathan's taxable income. Please show your
Ramon, a single taxpayer with no dependents, has adjusted gross income for 2020 of $98,000 and his itemized deductions total $9,000. What taxable income will Ramon show in 2020?a. $74,950b. $85,800c.
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 2020?a. $4,200b. $12,400c. $12,000d.
Brock, age 50, and Erin, age 49, are married with three dependent children. They file a joint return for 2020. Their income from salaries totals $50,000, and they received $8,000 in taxable interest,
Jackson, age 35, and Peggy, age 34, are married and file a joint income tax return for 2020. Their salaries for the year total $85,000 and they have dividend income of $4,000. They have no deductions
Joan, who was divorced in 2020, had filed a joint tax return with her husband in 2019. During 2020, she did not remarry and continued to maintain her home in which her five dependent children lived.
Wanda is a single 50-year-old taxpayer with no dependents. Her only income is $41,000 of wages. Calculate her taxable income and her tax liability. Please show your work.
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 2020. Explain your answer. a. Helen is a
Nicoula is a server at a La Jolla restaurant. Nicoula received $1,200 in unreported tips during 2020 and owes Social Security and Medicare taxes on these tips. Her total income for the year,
Yasmine and her spouse Carlos, who file married filing jointly, provide all the support for their 16-year-old son, Miguel. If Miguel qualifies as a qualifying child under the dependent rules, Yasmine
Lakota and Dominique file married filing jointly and have a 13-year-old daughter. They also provide 25 percent of the support for Lakota’s 82-year-old mother, who lives in a nursing home nearby.
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
Determine from the tax table in Appendix A the amount of the income tax for each of the following taxpayers for 2020: Taxpayer(s) Allen Boyd Caldwell Dell Evans Filing Status Single MFS MFJ H of
For each of the following cases, indicate the filing status for the taxpayer(s) for 2020 using the following legend:A—SingleB—Married filing a joint returnC—Married filing separate
Which of the following taxpayers is not eligible for an economic impact payment in 2020?a. Savannah, a married taxpayer with no children, and has AGI of $75,000 in 2020b. Blake, a single taxpayer
Melissa and Whitney are married taxpayers with taxable income of $106,000. a. When you calculate their tax liability, are you required to use the tax tables or the tax rate schedules, or does it
As a married couple, Yihong and Kaylee’s EIP was $2,400. In 2020, they computed their recovery rebate credit as $2,900 due to the birth of a child in 2020. The 2020 net impact of the EIP and RRC
Morgan is 65 years old and single. He supports his father, who is 90 years old, blind,and has no income. What is Morgan’s standard deduction?a. $12,400b. $14,050c. $20,300d. $18,650e. $20,000
Jessica and Carl were married on July 1, 2020. What are their options for filing status for their 2020 taxes?
Marquez is single and supports his 30-year-old son who has income of $2,000 and lives in his own apartment.a. Can Marquez claim his son as a dependent?b. Can Marquez claim head of household filing
Alex purchased a rental house 4 years ago for $270,000. Her depreciation at the time of the sale is $40,000. Due to a decrease in real estate prices, she sells the house for only $240,000 in 2020.
What is the total dollar amount of personal and dependency exemptions which a married couple with two children (ages 11 and 14, both of which are qualified children) and $80,000 of adjusted gross
Dorit, a single taxpayer, has a long-term capital loss of $7,000 on the sale of bonds in 2020 and no other capital gains or losses. Her taxable income without this transaction is $43,000. What is her
Luke and Vanessa have been married since 2016 and have filed jointly each year since then.Their 2019 EIP was based on their 2019 tax return that was filed in early February 2020. In May 2020, they
Indicate whether each of the items listed below would be included (I) in or excluded (E) from gross income for the 2020 tax year. a. Welfare payments b. Commissions c. Hobby income d. Scholarships
Kristen, a single taxpayer, receives two 2020 Forms W-2 from the two employers she worked for during the year. One Form W-2 lists her wages in Boxes 1, 3, and 5 as $18,700. Her other employer’s
Ken (birthdate July 1, 1989) and Amy (birthdate July 4, 1991) Booth have brought you the following information regarding their income, expenses, and withholding for the year. They are unsure which of
Linda and Richard are married and file a joint return for 2020. 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;
For each of the following independent cases, indicate the amount of gross income that must be included on the taxpayer’s 2020 income tax return. a. Malchia won a $4,000 humanitarian award. b. Rob
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 2020.b. Jon received a gold watch worth $660 for 25
Huihana receives 4 tickets to the local professional football game for achieving 20 years of employment with her employer. The tickets cost the employer $390 and have a market value of the same on
Sally and Charles Heck received the following Form 1099-DIV in 2020:The Hecks also received the following dividends and interest in 2020 (Forms 1099-DIV not shown): CORRECTED (if checked) PAYER'S
A 67-year-old taxpayer retires this year and receives the first payment on an annuity that was purchased several years ago. The taxpayer’s investment in the annuity is $94,500, and the annuity pays
Russell (birthdate February 2, 1969) and Linda (birthdate August 30, 1974) Long have brought you the following information regarding their income and expenses for the current year. Russell owns and
Greg died on July 1, 2020, 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.
Lupita dies in 2020 but has a $1 million life insurance policy that lists her spouse, M’Baku as the beneficiary. M’Baku elects to receive all $1 million in a lump sum and spends $200,000
Nomi is in the highest individual tax bracket and receives $375 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 2020? Please give the rates of tax which apply to qualified dividends, and specify when each of these rates applies._____________________________________
Vandell is a taxpayer in the 22 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 $35,000 on tuition and books and $5,000 for rent while at school. Kelly will recognize _______ gross income.a. $0b. $5,000c. $10,000d.
Hillary gets divorced in 2019 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 2020 payments are
In June of 2020, 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
Jose paid the following amounts for his son to attend Big State University in 2020:How much of the above is a qualified higher education expense for purposes of his Section 529 plan? Tuition Room and
Arlen is required by his 2020 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?
Donald and Michelle are divorced in the current year. As part of the divorce settlement, Michelle transfers a plot of land in Long Island, NY to Donald. Michelle’s basis in the property was $20,000
In 2020, Amy receives $8,000 (of which $3,000 is earnings) from a qualified tuition program. She uses the funds to pay for tuition and other qualified higher education expenses. What amount is
During 2020, Carl (a single taxpayer) has a salary of $91,500 and interest income of $11,000. Calculate the maximum contribution Carl is allowed for an educational savings account.a. $0b. $400c.
In 2020, Van receives $20,000 (of which $4,000 is earnings) from a Section 529 plan. He uses the funds to pay for his college tuition and other qualified higher education expenses. How much of the
Wendy is a single taxpayer and pays tuition of $7,800 in 2020. Her 2020 AGI is $66,000. What is the amount of Wendy’s tuition deduction?a. $0b. $7,800c. $4,000d. $2,000e. $3,733.33
Lydia, a married individual, was unemployed for a few months during 2020. During the year, she received $3,250 in unemployment compensation payments. How much of her unemployment compensation
During the 2020 tax year, Brian, a single taxpayer, received $7,400 in Social Security benefits. His adjusted gross income for the year was $14,500 (not including the Social Security benefits) and he
Alicia loses her job part way through 2020. Her employer pays her wages of $15,450 up through her date of termination. After that, she received $1,600 of unemployment compensation from the state
For 2020, the maximum percentage of Social Security benefits that could be included in a taxpayer’s gross income is:a. 0%b. 25%c. 50%d. 75%e. 85%
In 2020, Son loses his job and becomes insolvent. His debts are worked out in bankruptcy and he is able to reduce his mortgage debt by $30,000. Explain how much cancellation of debt income Son will
Kate acquires a principal residence in 2016 for $200,000 secured by a $180,000 mortgage. In 2020, Kate catches the coronavirus and misses work for 3 months. Her employer stops paying her after 10
Bobby Reynolds, a new client of yours, is a selfemployed caterer in Santa Fe, New Mexico. Bobby drives his personal van when delivering catered meals to customers. You have asked him to provide the
Your supervisor has asked you to research a potential tax deduction for a client, Randall Stevens. Randall is a selfemployed loan agent that lives in Portland, Maine. His specialty is marine loans;
Heather drives her minivan 903 miles for business purposes in 2020. She elects to use the standard mileage rate for her auto expense deduction. Her deduction will bea. $510b. $515c. $519d. $553e. $953
Charu Khanna received a Form 1099-B showing the following stock transactions and basis during 2020:None of the stock is qualified small business stock. The stock basis was reported to the IRS.
Skylar and Walter Black have been married for 25 years. They live at 883 Scrub Brush Street, Apt. 52B, Las Vegas, NV 89125. Skylar is a stay-at-home parent and Walt is a high school teacher.
Martin sells a stock investment for $26,000 on August 2, 2020. Martin’s adjusted basis in the stock is $15,000.a. If Martin acquired the stock on November 15, 2018, calculate the amount and the
Carey opens a law office in Chicago on January 1, 2020. On January 1, 2020, Carey purchases an annual subscription to a law journal for $170 and a 1year legal reference service for $1,500. Carey also
During 2020, Tom sold GM stock for $10,000. The stock was purchased 4 years ago for $13,000. Tom also sold Ford Motor Company bonds for $35,000. The bonds were purchased 2 months ago for $30,000.
Dr. George E. Beeper is a single taxpayer born on September 22, 1972. He lives at 45 Mountain View Dr., Apt. 321, Spokane, WA 99210. Dr. Beeper’s Social Security number is 775-88-9531. Dr. Beeper
In 2020, Professor Patricia (Patty) Pâté retired from the Palm Springs Culinary Arts Academy (PSCAA). She is a single taxpayer and is 62 years old. Patty lives at 98 Colander Street, Apt. 206D,
Yasmeen purchases stock on January 30, 2019. If she wishes to achieve a long-term holding period, what is the first date that she can sell the stock as a long-term gain?a. January 20, 2020b. January
Jocasta owns an apartment complex that she purchased 6 years ago for $700,000. Jocasta has made $75,000 of capital improvements on the complex, and her depreciation claimed on the building to date is
In 2020, Michael has net short-term capital losses of $1,500, a net long-term capital loss of $27,000, and other ordinary taxable income of $45,000.a. Calculate the amount of Michael’s deduction
In 2020, what is the top tax rate for individual long-term capital gains and the top tax rate for long-term capital gains of collectible items assuming that the Medicare tax does not apply.a. 10;
Larry Gaines, a single taxpayer, age 42, sells his personal residence on November 12, 2020, for $160,000. He lived in the house for 7 years. The expenses of the sale are $9,100, and he has made
Susan, a single taxpayer, bought her home 25 years ago for $30,000. She has lived in the home continuously since she purchased it. In 2020, she sells her home for $200,000. What is Susan’s taxable
Walter, a single taxpayer, purchased a limited partnership interest in a tax shelter in 1994. He also acquired a rental house in 2020, which he actively manages. During 2020, Walter’s share of the
Jim, a single taxpayer, bought his home 20 years ago for $25,000. He has lived in the home continuously since he purchased it. In 2020, he sells his home for $300,000. What is Jim’s taxable gain on
Oscar, a single taxpayer, sells his residence of the last 10 years in January of 2020 for $190,000. Oscar’s basis in the residence is $45,000, and his selling expenses are $11,000. If Oscar does
In 2020, Tim, a single taxpayer, has ordinary income of $30,000. In addition, he has $2,000 in short-term capital gains, long-term capital losses of $10,000, and long-term capital gains of $4,000.
Harold, a single taxpayer, has $30,000 of ordinary income after the standard deduction, and $10,000 in long-term capital gains, for total taxable income of $40,000. For 2020, single taxpayers pay 0
On July 1, 2020, Ted, age 73 and single, sells his personal residence of the last 30 years for $368,000. Ted’s basis in his residence is $49,000. The expenses associated with the sale of his home
In November 2020, Ben and Betty (married, filing jointly) have a long-term capital gain of $54,000 on the sale of stock. They have no other capital gains and losses for the year. Their ordinary
Julie, a single taxpayer, has completed her 2020 Schedule C and her net loss is $40,000. Her only other income is wages of $30,000. Julie takes the standard deduction of $12,400 in 2020. a. Calculate
Clifford Johnson has a limited partnership investment and a rental condominium. Clifford actively manages the rental condominium. During 2020, his share of the loss from the limited partnership was
Tyler, a single taxpayer, generates business income of $3,000 in 2016. In 2017, he generates an NOL of $2,000. In 2018, he incurs another NOL of $5,000. In 2019, he generates a modest business income
Kevin purchased a house 20 years ago for $100,000 and he has always lived in the house. Three years ago Kevin married Karen, and she has lived in the house since their marriage. If they sell
Rob Wriggle operates a small plumbing supplies business as a sole proprietor. In 2020, the plumbing business has gross business income of $421,000 and business expenses of $267,000, including wages
Jim has a net operating loss in 2020. If he does not make any special elections, what is the first year to which Jim carries the net operating loss?a. 2015b. 2016c. 2017d. 2018e. 2020
Gregory R. and Lulu B. Clifden live with their family at the Rock Glen House Bed & Breakfast, which Gregory operates. The Bed & Breakfast (B&B) is located at 33333 Fume Blanc Way,
Noah and Joan Arc live with their family at 4342 Josie Jo, Santee, CA 92071. Noah’s Social Security number is 434-11-3311; Joan’s is 456-87-5432. Both are in their mid-30s and enjoy good health
The IRS maintains a section called “News and Events.” Locate this website and print out the first page of the first item appearing on “News and Events.”
Go to the IRS website (www.irs.gov) and answer the following questions:a. Who is the commissioner of the IRS?b. When did he or she take office?c. What was his or her background before becoming
Jim has a house payment of $2,000 per month of which $1,700 is deductible interest and real estate taxes with the remaining $300 representing a repayment of the principal balance of the note. Jim’s
Melodie’s taxable income is $40,000 and she pays income tax of $5,800. If Melodie’s taxable income increases to $41,000, she would pay income taxes of $6,050. What is Melodie’s marginal tax
Glen’s taxable income is $50,000 and he pays income tax of $8,300. If his income were $60,000, he would pay taxes of $10,800. What is Glen’s marginal tax rate?a. 18.23%b. 17.87%c. 15.00%d.
If the IRS owes a taxpayer a refund, the law generally provides that the IRS must pay interest on the refund if it is not paid within _____ days of the date the taxpayer filed his or her tax return
If a U.S. Tax Court agrees with the taxpayer on appeal that the IRS position was largely unjustified, which of the following is correct?a. The taxpayer must still pay administrative and litigation
Taxpayers have the right to have an IRS examination take place at:a. The IRS officeb. Any city of the taxpayer’s choosingc. A neutral sited. A reasonable time and placee. None of the above
A taxpayer’s rights are explained in:a. Publication 5b. Publication 17c. Publication 556d. Publication 1e. None of the above
Both spouses are responsible, jointly and individually, for paying the full amount of any tax, interest, or penalties due on a joint return.a. This does not apply to spouses who have divorced after

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