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Exam 3: Tax Formula and Tax Determination an Overview of Property Transactions

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Question 1

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A taxpayer who itemizes must use Form 1040, and cannot use Form 1040EZ or Form 1040A.

A) True
B) False

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Question 2

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Lucas, age 17 and single, earns $6,000 during 2018. Lucas's parents cannot claim him as a dependent if he does not live with them.

A) True
B) False

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Question 3

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Which of the following items, if any, is deductible?

Lee, a citizen of Korea, is a resident of the U.S. Any rent income Lee receives from land he owns in Korea is not subject to the U.S. income tax.

Roy and Linda were divorced in 2017. The divorce decree awards custody of their children under age 17) to Linda but is silent as to who is entitled to treat them as dependents for purposes of claiming the child credit. If Roy furnished more than half of their support, he can claim the child tax credit for them in 2018.

Mel is not quite sure whether an expenditure he made is a deduction for AGI or a deduction from AGI. Since he plans to choose the standard deduction option for the year, does the distinction matter? Explain.

Married taxpayers who file separately cannot later i.e., after the due date for filing) change to a joint return.

Adjusted gross income AGI) appears at the bottom of page 1 and at the top of page 2 of Form 1040.

During 2018, Enrique had the following transactions: Enrique's AGI is:

Married taxpayers who file a joint return cannot later i.e., after the filing due date) switch to separate returns for that year.

Many taxpayers who previously itemized will start claiming the standard deduction when they purchase a home.

Which, if any, of the following statements relating to the standard deduction is correct?

The basic and additional standard deductions both are subject to an annual adjustment for inflation.

Katrina, age 16, is claimed as a dependent by her parents. During 2018, she earned $5,600 as a checker at a grocery store. Her standard deduction is $5,950 $5,600 earned income + $350).

Mandeep's parents live in another state and she cannot claim them as her dependents. If Mandeep pays their medical expenses, can she derive any tax benefit from doing so? Explain.

Currently, the top income tax rate in effect is not the highest it has ever been.

Ed is divorced and maintains a home in which he and a dependent friend live. Ed does not qualify for head of household filing status.

For the current year, David has wages of $80,000 and the following property transactions: $\begin{array}{lr}\text { Stock investment sales- } \\\text { Long-term capital gain } &\$ 9,000 \\\text { Short-term capital loss } &(12,000) \\\text { Loss on sale of camper (purchased 4 years ago and used for family vacations) } &(2,000) \end{array}$ What is David's AGI for the current year?

In which, if any, of the following situations may the individual not be claimed as a dependent of the taxpayer?

During 2018, Trevor has the following capital transactions: $\begin{array} { l r } \text { LTCG } & \$ 6,000 \\\text { Long-term collectible gain } & 2,000 \\\text { STCG } & 4,000 \\\text { STCL } & 10,000\end{array}$ After the netting process, the following results: