King and Queen Candy are married and under 65 years of age.During 2018, they furnish more than half of the support of their 19-year old daughter, Taffyta Muttonfudge, who lives with them. She graduated from high school in May 2017.Taffyta earns $15,000 from a part-time job, most of which she sets aside for future college expenses. The Candys also provide more than half of the support of the King's cousin, Rancis Fluggerbutter, who lives with them. The Queen's father, who died on January 15, 2018, at age 89, has for many years qualified as their dependent.Finally, they also support Sour Bill, age 66, who is a friend of the family and lives with them. Which dependents, if any, are considered dependents of the Candys and what is the basis for your determination?

2.Ralph, a calendar year taxpayer, purchased an annuity for $50,000 in 2014. The annuity was to pay him $4,000 on January 1 of each year, beginning in 2015, for the rest of his life. Ralph's life expectancy at the time he purchased the annuity was 20 years. In 2017, Ralph developed a terminal disease and doctors estimated that he would live for no more than one year.

a.Calculate the exclusion ratio for Ralph's payments received in 2015 and determine the amount of income he will report on each expected subsequent annuity payment.

b.Assuming Ralph dies in 2018, what will be the tax result on his 2018 tax return?

c.Assuming Ralph makes a miraculous recovery and lives until 2036, how much income will Ralph report on his tax return as a result of receiving the annuity?

3.Princess Vanellope, a single person who is 66 years of age, is retired and receives $20,000 in dividends, $8,000 tax exempt interest, and $10,000 in Social Security benefits.

a.What amount of Princess Vanellope's social security is taxable?

b.Assume that Princess Vanellope did not receive the tax-exempt interest, what difference would this make, if any?

c.Assuming the same income as in part a., calculate Princess Vanellope's taxable income.