Exam 4: Individual Income Tax Overview, Exemptions, and Filing Status

William and Charlotte Collins divorced in November of year 1. William moved out and Charlotte remained in their house with their 10-month-old daughter Autumn. Diana, Charlotte's mother, lived in the home and acted as Autumn's nanny for all of year 1. William provided 70% of Autumn's support, Diana provided 20%, and Charlotte provided 10%. When the time came to file their tax returns for year 1, William, Charlotte, and Diana each wanted to claim Autumn as a dependent. Their respective AGIs for year 1 were $50,000, $35,000, and $52,000. Who has priority to claim Autumn as a dependent?

In year 1, the Bennetts' 25-year-old daughter, Jane, is a full-time student at an out-of-state university but she plans to return home after the school year ends. In previous years, Jane has never worked and her parents have always been able to claim her as a dependent. In year 1, a kind neighbor offers to pay for all of Jane's educational and living expenses. Which of the following statements is most accurate regarding whether Jane's parents would be allowed to claim an exemption for Jane in year 1 assuming the neighbor pays for all of Jane's support?

A taxpayer may qualify for the head of household filing status even if she does not have any dependent children.

Earl and Lawanda Jackson have been married for 15 years. They have no children. Ned, who is an old friend from high school, has been living with the Jacksons during the current year. Which of the following is a true statement regarding whether the Jacksons can claim a dependency exemption for Ned in the current year?

The standard deduction amount varies by filing status.

The test for qualifying children includes an age restriction but the test for qualifying relative does not.

The standard deduction amount for married filing separately taxpayers (MFS) is less than the standard deduction amount for married filing jointly taxpayers.

John Maylor is a self-employed plumber of John's John Service, his sole proprietorship. In the current year, John's John Service had revenue of $120,000 and $40,000 of business expenses. John also received $2,000 of interest income from corporate bonds. What is John's adjusted gross income assuming he had no other income or expenses (ignore any deduction for self-employment tax)?

In February of 2013, Lorna and Kirk were married. During 2014, Lorna received $40,000 of compensation from her employer and Kirk received $30,000 of compensation from his employer. The couple together reported $2,000 of itemized deductions. Lorna and Kirk filed separately in 2014. What is Lorna's taxable income and what is her tax liability (use the applicable tax rate schedule)?

Which of the following statements about a qualifying person for head of household filing status is true?

Sally received $50,000 of compensation from her employer and she received $400 of interest from a corporate bond. What is the amount of Sally's gross income from these items?

Lebron received $50,000 of compensation from his employer and he received $400 of interest from a municipal bond. What is the amount of Lebron's gross income from these items?

Which of the following statements regarding tax credits is true?

A personal automobile is a capital asset.

All of the following represents a type or character of income except:

Lydia and John Wickham filed jointly in year 1. They divorced in year 2. In late year 2, the IRS discovered that the Wickham's underpaid their year 1 taxes by $2,000. Both Lydia and John worked in year 1 and received equal income but John had $2,000 less tax withheld than did Lydia. Who is legally liable for the tax underpayment?

Relative to for AGI deductions, from AGI deductions tend to relate to items that are more personal in nature.

All of the following are for AGI deductions except:

Anna is a 21-year-old full-time college student (she plans on returning home at the end of the school year). Her total support for the year was $34,000 (including $8,000 of tuition). Anna covered $12,000 of her support costs out of her own pocket (from savings, she did not work) and she received an $8,000 scholarship that covered all of her tuition costs. Which of the following statements regarding who is allowed to claim Anna as an exemption is true?

Qualified dividends are taxed at the same rate as ordinary income.