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

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Question 41

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When determining whether a child meets the qualifying child support test for the child's grandparents, scholarships earned by the child do not count as self-support provided by the child.

A) True
B) False

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Question 42

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The character of income determines the rate at which the income is taxed.

A) True
B) False

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Question 43

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

Taxpayers are allowed to deduct more for each personal exemption they claim than for each dependency exemption they claim.

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?

Jane and Ed Rochester are married with a two-year-old child who lives with them and whom they support financially. In 2016, Ed and Jane realized the following items of income and expense: $\begin{array} { | l | r | } \hline \text { Item } & \text { Amount } \\\hline \text { Ed's Salary } & \$ 35,000 \\\hline \text { Jane's Salary } & 34,400 \\\hline \text { Municipal bond interest income } & 400 \\\hline \text { Alimony paid (for AGl deduction) } & ( 7,000 ) \\\hline \text { Real propery tax (from AGl deduction) } & ( 10,000 ) \\\hline\end{array}$ They also qualified for a $1,000 tax credit. Their employers withheld $1,800 in taxes from their paychecks (in the aggregate). Finally, the 2016 standard deduction amount is $12,600 and the 2016 exemption amount is $4,050. What is the couple's taxable income?

Sam and Tacy have been married for 25 years. They have filed a joint return every year of their marriage. They have two sons Christopher and Zachary. Christopher is 19 years old and Zachary is 14 years old. Christopher lived in his parents' home from January through August and he lived in his own apartment from September through December. During the year, Christopher attended college for one month before dropping out. Christopher's living expenses totaled $12,000 for the year. Of that, Christopher paid $5,000 from income he received while working a part time job. Sam and Tacy provided the remaining $7,000 of Christopher's support. Zachary lived at home the entire year and did not earn any income. How many personal and dependency exemptions are Sam and Tacy entitled to claim for the year and for whom are they allowed to claim the exemption(s)?

A personal automobile is a capital asset.

Which of the following statements regarding tax credits is true?

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

Bonnie and Ernie file a joint return. Bonnie works and receives income during the year but Ernie does not. If the couple files a joint tax return, Ernie is responsible for paying any taxes due if Bonnie is unable to pay the taxes.

The relationship requirement for qualifying relative includes cousins.

Char and Russ Dasrup have one daughter, Siera, who is 16 years old. In November of last year, the Dasrup's took in Siera's 16 year old friend, Angela, who has lived with them ever since. The Dasrup's have not legally adopted Angela but Siera often refers to Angela as "her sister." The Dasrup's provide all of the support for both girls, neither girl receives any income during the year, and both girls live at the Dasrup's residence. Which of the following statements is true regarding the dependency exemptions (and the reason for the exemptions) Char and Russ may claim for the current year for these girls?

Certain types of income are taxed at a lower rate than ordinary income.

An individual receiving $5,000 of tax exempt income during the year could qualify as a qualifying child of another taxpayer but could not qualify as a qualifying relative of another taxpayer.

All of the following are for AGI deductions except:

In June of year 1, Eric's wife Savannah died. Eric did not remarry during year 1, year 2, or year 3. Eric maintains the household for his dependent daughter Catherine in year 1, year 2, and year 3. Which is the most advantageous filing status for Eric in year 2?

In determining filing status purposes, which of the following is not a requirement for a married taxpayer to be treated as unmarried at the end of the year?

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?

For AGI deductions are commonly referred to as deductions "above the line."