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

Which of the following statements regarding personal and dependency exemptions is false?

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?

Taxpayers need not include an income item in gross income unless there is a specific tax provision requiring the taxpayer to include the income item in gross income.

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?

If no one qualifies as the dependent of an unmarried taxpayer, the unmarried taxpayer may still be able to qualify for the head of household filing status.

If an unmarried taxpayer is able to claim a dependency exemption for another individual, the taxpayer is automatically eligible for the head of household filing status.

Which of the following is not an itemized deduction?

Sullivan's wife Susan died four years ago. Sullivan has not remarried and he maintains a home for his dependent child Sammy. In 2014, Sullivan received $70,000 of salary from his employer and he paid $6,000 of itemized deductions. What is Sullivan's taxable income for 2014?

Taxpayers are generally allowed to claim deductions for expenditures unless a specific tax provision indicates the expenditure is not deductible.

Inventory is a capital asset.

Which of the following statements regarding exclusions and/or deferrals is false?

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?

An individual may meet the relationship test to be a taxpayer's qualifying relative even if the individual has no family relationship with the taxpayer.

Charlotte is the Lucas family's 22-year-old daughter. She is a full-time student at an out-of-state university but plans to return home when the school year ends. During the year, Charlotte earned $4,000 of income working part-time. Her support totaled $30,000 for the year. Of this amount, Charlotte paid $7,000 with her own funds, her parents paid $14,000, and Charlotte's grandparents paid $9,000. Which of the following statements most accurately describes whether Charlotte's parents can claim a dependency exemption for Charlotte?

Sheri and Jake Woodhouse have one daughter, Emma, who is 16 years old. They also have taken in Emma's friend, Harriet, who has lived with them since February of the current year and is also 16 years of age. The Woodhouses have not legally adopted Harriet but Emma often refers to Harriet as "her sister." The Woodhouses provide all of the support for both girls, and both girls live at the Woodhouse residence. Which of the following statements is true regarding the dependency exemptions (and the reason for the exemptions) Sheri and Jake may claim for the current year for these girls?

Mason and his wife Madison have been married for five years. Jaxon, who is 18 years old and unrelated to Mason and Madison, has been living with Mason and Madison for the last two years. In May of year 1, Mason and Madison divorced. Mason and Jaxon stayed in the home and Madison moved out. During year 2, Mason provided all of Jaxon's support and Jaxon lived in the home for all of year 2. Jaxon did not earn any income during year 2. What is Mason's most favorable filing status for year 2?

The relationship requirement is more broadly defined (includes more relationships) for a qualifying relative than it is for a qualifying child.

The Dashwoods have calculated their taxable income to be $80,000 for 2014, which includes $2,000 of long-term capital gains. Using the appropriate tax rate schedule, calculate the Dashwood's income tax liability assuming they are married and file a joint return.

Itemized deductions and the standard deduction are deductions from AGI but deductions for personal and dependency exemptions are deductions for AGI.

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