Chapter 1 for Essentials of Federal Income Taxation for individuals and Business 2015

By Linda M.jOHNSON

8. Standard Deduction. (Obj. 3) Compute each taxpayer's 2014 total standard deduction. a. Bryce, age 20, is a full-time student. His parents claim him as a dependent. Bryce has interest income of $320 and wages from a part-time job of $3,800. b. b. Same as in Part a., except that Bryce's wages are $6,500. c. c. Heather, age 66, is married and files a separate return. Her husband also uses the standard deduction on his return. d. Juliet, age 19, is blind and claimed as a dependent by her parents. Her only income is $5,200 of taxable interest. 9. Exemptions. (Obj. 4) How many exemptions can be claimed on a joint income tax return by an employed taxpayer who is married and has two unmarried children? One child, a daughter age 17, has no income. The other child, a son age 22, is a part-time college student. The son earned $3,700 during the year. The taxpayer provides over half of each child's support. The taxpayer's spouse is not employed. 10.Exemptions. (Obj. 4) Kevin Kirby, age 67 and blind, is married to Susan Kirby, age 56 with good vision. Their 37-year-old divorced daughter, along with her 18-year-old son, live with them. The Kirbys provided more than half the support of their daughter and grandson. The daughter earned wages of $4,800 during the year; the grandson, a part-time college student, earned wages of $5,000. How many exemptions can the Kirbys claim on their 2014 joint tax return? Explain your answer. 11. Exemptions. (Obj. 4) Vera and Billy were divorced during the year. Vera was awarded custody of the children, George, age 6, and Jean, age 9. There was no agreement about who would receive the dependency exemptions for the children. Billy provides all support for the children. a. Who receives the dependency exemptions? b. Might the other parent receive the exemptions under certain conditions? Explain. 12. Shirley Brown has a child born at 10 P.M. on December 31 of the taxable year, can Shirley claim a full exemption for the year or must she prorate her exemption? b. A qualifying dependent of a taxpayer dies on January 4 of the taxable year. Can the taxpayer claim a full exemption for the child for the year or must she prorate the exemption? 14. Exemptions. (Obj. 4) Jenna Wren claims one personal exemption and three dependency exemptions on her 2014 tax return. Her filing status is head of household. Compute Jenna's exemption deduction if her AGI is $315,250. 17. Exemptions. (Obj. 4) Megan files as a single taxpayer. She claims one person exemption and on dependent. Compute Megan's 2014 exemption deduction if her AGI is: a. $284,500 b. $392,600 c. $182,950 18. Exemptions and Taxable Income. (Obj.1 and 4) John and Jamie Kerr (age 67 and 64, respectively) do not claim any dependents an their joint tax return. Both have good vision. Compute their 2014 taxable income if the Kerr's use the standard deduction and their AGI IS $357,040. 20. Dependents. (Obj. 4) Indicate by inserting an X in the proper column which of the following persons pass, with respect to the taxpayer, (1) the relationship test for a qualifying child or (2)the relationship test for a qualifying relative. The taxpayer is 46 years old and unmarried. Qualifying Child? Qualifying Relative? a. Taxpayer's 31-year-old cousin --------------------------------------------------- ---- b. Taxpayer's father ------------------------------------------------------------------ ---- c. Taxpayer's 67-year-old foster mother ------------------------------------------- ---- d. Taxpayer's 50-year-old stepsister ------------------------------------------------ ---- e. Taxpayer's 45-year-old brother-in-law ------------------------------------------ ---- f. Taxpayer's grandchild ------------------------------------------------------------- ---- g. Taxpayer's 42-year-old half-brother --------------------------------------------- ---- h. Taxpayer's 21-year-old nephew (sister's son) i. Father (age 62) of taxpayer's former spouse ----------------------------------- ---- j. Uncle (age 59) of taxpayer's deceased spouse --------------------------------- ---- k. Taxpayer's 29-year-old son-in-law ---------------------------------------------- ---- l. m. Taxpayer's grandfather -----------------------------------------------------------Taxpayer's mother-in-law (taxpayer's spouse deceased) ---- 22. Filing Status. (Obj. 5) Indicate the proper filing status for each of the following taxpayers. a. Unmarried; divorced last year; no dependents b. Married; spouse has been properly claimed as a dependent on another taxpayer's return c. Married on December 31, no dependents d. Widower; spouse died last year; has a dependent 6-year-old child; has not remarried e. Legally separated from spouse by a separate maintenance decree; has no dependents f. Married; maintains a household for more than six months of the year for self and an adopted 4- year-old child who qualifies as a dependent; spouse left home on February 15 of current year and has not been seen since g. Unmarried; maintains a home for entire year for self and his 8-year-old dependent grandchild h. Married; has $15,000 of gross income; spouse has filed a separate return i. Widower; spouse died January 16 last year; has not remarried; maintained parent's home for the entire year; parent qualifies as a dependent. 22. Filing Status. (Obj. 5) Grace provides 52% of the household costs for her widowed mother during the year. Grace claims her mother as a dependent. Can Grace file a return as head of Household if her mother does not live with her? Explain the reason behind your answer 25. Tax Years. (Obj. 6) The date a tax year closes is an important date from a taxpayer's point of view because it stops the IRS from assessing a tax deficiency on a closed tax year. It is an important date from the government's point of view because it stops a taxpayer from making a refund claim on a closed tax year. a. If a taxpayer files her tax return for 2014on April 1, 2015, on what specific date does her 2014 tax year close under the normal closing rule? b. If a taxpayer inadvertently (mistakenly) omits too much gross income from his or her income tax return, the normal closing of a tax year is extended by three years. What percentage of the taxpayer's gross income must be omitted from his or her income tax return in order for the closing year to be extended? As part of your answer, explain exactly how this percentage is applied. 26. Standard Deduction and Filing Requirements. (Obj. 6) For each of the following individuals, determine (1) the amount of their total standard deduction and (2) the maximum amount of gross income each can have before having to file an income tax return for 2014. a) Steve is 36 years old. His filing status is single and has 20/20 vision. b) Maggie is a 70 years old widow. Her son claims her as a dependent. Maggie is permanently blind. Her gross income includes investment income, but no earned income. c) Same as in Part b., except that Maggie is not claimed a dependent on her son's return. d) Jeannie and Tom file a joint tax return. Jennie turned 65 on January 1, 2015; Tom turned 69on March 8, 2015. Neither have any vision problems. e) Sally files a separate tax return from her husband. She is 40 years old and blind. f) Joe's wife died in 2014. Joe is 70 years old and has good eyesight. At the time of her death, Joe's wife was 60 and had good eyesight. Joe does not itemize. 29. Internet Problem: Filling out Form 8332 (Obj. 4) James R. Greene Greene (SSN 846-87-1660) is custodial parent of his daughter. Jackie A Greene .The divorce grants the 2014 exemption for Jackie to Colette C. Royce (SSN 662-795500), who is Jackie's mother. Go to IRS website and locate Form 8332, Release/Revocation of Claim to Exemption for Child by Custodial Parent. Fill out the form for Colette C. Royce. Greene signs the form on December 5, 2014. See Appendix A for instruction on use of the IRS website. 30. Internet Problem: Filling out Form 2120. (Obj. 4) With the exception of the support test, Agnes b. Jones (SSN 995-73-3446)and Robert Brown(SSN 19946-6677) can each claim their father, Kenneth J. Brown, as a dependent. Agnes and Robert each contribute 45% of Kenneth's support. Robert gave Agnes a signed statement giving away his rights to the dependency exemption for Kenneth in 2014.Robert lives at 321 Highland Ave. Kettering,Ohio,45429. Go to IRS website and locate Form 2120, Multiple Support Declaration. Fill out form that Agnes B. Jones will attach to her 2014 tax return. See Appendix A for instruction on use of the IRS website