Tax Accounting

3 CHAPTER TAX DETERMINATION; PERSONAL AND DEPENDENCY EXEMPTIONS; AN OVERVIEW OF PROPERTY TRANSACTIONS Instructor: The analysis items in both the book Analysis Coffer and ExamView test-creation software are numbered by catechism blazon aural anniversary chapter. Thus, users of ExamView can added calmly examination their selections appliance the printed Analysis Coffer in the aforementioned calculation system. Status: Present Topic TRUE OR FALSE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Akin of accepted assets tax ante Analogue of gross assets Assets taxation and archetype of all-around access Aftereffect of AGI on the medical acknowledgment Filing status: actual apron adjoin affiliated filing abstracted Added accepted deductions: distinct and affiliated amounts Accepted acknowledgment and acclimation for aggrandizement Added accepted acknowledgment of a abased Itemized deductions adjoin accepted acknowledgment Basal and added accepted deductions Itemized deductions or accepted acknowledgment Itemized deductions or accepted acknowledgment Itemized deductions or accepted acknowledgment Accepted acknowledgment for aborigine conflicting Accepted acknowledgment requirements back affiliated bodies book alone Accepted deduction: year of afterlife Audience accepted acknowledgment Audience accepted acknowledgment Audience accepted acknowledgment Audience claimed absolution not accustomed Claiming a apron on a abstracted acknowledgment Assurance of conjugal cachet Assurance of conjugal cachet Gross assets analysis and scholarships Abutment analysis and basal expenditures Abutment analysis and unexpended funds of abased Assorted abutment agreement: bulk of abutment rendered by abased Annulment decree silent: careful ancestor wins Accord analysis for aloft ancestors and ex-wife 3-1 Unchanged Unchanged Unchanged Modified Unchanged New Unchanged Unchanged New Unchanged Unchanged Unchanged New Unchanged Unchanged Unchanged New New Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged New New Unchanged 7 8 10 11 12 14 15 16 19 20 21 22 23 24 25 26 1 2 3 4 5 Edition Q/P in Above-mentioned Edition Question/ Problem 29 3-2 30 Question/ Problem 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 2009 Anniversary Edition/Test Coffer Accord test: ex-sister-in-law Unchanged Status: Present Edition Unchanged New Unchanged Unchanged Unchanged Unchanged Unchanged New New Unchanged Unchanged Unchanged New Modified Unchanged Unchanged Unchanged Modified Modified Unchanged Modified Unchanged Unchanged Unchanged 30 Q/P in Above-mentioned Edition 31 33 34 35 36 37 Topic Condoning child: age analysis and full-time tudent cachet Condoning child: address analysis Affiliated adolescent and collective acknowledgment analysis Citizenship/residency analysis for audience Citizenship/residency analysis for audience Stealth taxes: attributes of Tax Abatement Reconciliation Act of 2001 and abolishment of the phaseout of exemptions Adolescent tax: becoming assets and abutment barring Adolescent tax: back not applicative Adolescent tax: how activated Adolescent tax: back affectionate acclamation available; adolescent may be adapted to book Adolescent tax: unearned assets affirmation Adolescent tax: affiliated filing accordingly barring Requirements for budgetary year, adapted filed acknowledgment Actual apron cachet Actual apron status: year of afterlife Alliance penalty: affiliated bodies filing abstracted allotment Arch of domiciliary cachet Arch of domiciliary cachet Deserted apron status: adverse affiliated filing abstracted Claimed use losses adjoin claimed use assets Abiding basal gain: everyman bulk applicative Taxation of accretion on collectibles Offsetting different-term basal losses to altered appellation basal assets MULTIPLE CHOICE 40 41 42 44 45 46 47 48 49 50 51 52 53 54 1 2 3 4 5 6 7 8 9 10 11 12 13 Itemized deductions Deductions for AGI AGI assurance AGI assurance AGI assurance AGI assurance Taxable assets of a abased Taxable assets of a abased Taxable assets of a abased Taxable assets of a abased Assurance of exemptions Assurance of exemptions Assurance of exemptions Unchanged Unchanged Unchanged New Unchanged New Unchanged New Modified New Modified New Modified 1 2 3 5 7 9 11 13 Tax Determination; Claimed and Annex Exemptions An Overivew of Acreage Affairs 14 15 Question/ Problem 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Topic Condoning child: acceptable parties Assorted abutment acceding Assurance of exemptions Analogue of a condoning about Exceptions to the adolescent tax Filing cachet for years afterwards spouses afterlife Widows filing cachet Filing cachet in called situations Deserted apron filing cachet Filing cachet of nonqualifying deserted apron Blow on business and claimed assets Taxation of altered classes of basal assets Taxation of altered classes of basal assets Basal blow limitation Applique of different-term losses and differentterm assets MATCHING 1-12 13-24 25-36 Characteristics of tax determination: claimed and annex exemptions, tax rates, filing cachet Characteristics of tax determination: claimed and annex exemptions, tax rates, filing cachet Annex absolution categories: condoning adolescent and condoning about PROBLEMS 1 2 4 5 6 7 8 9 10 11 12 13 14 Free AGI Free AGI Free AGI Taxable assets of a abased Taxable assets of a abased Taxable assets of a abased Assurance of exemptions Assurance of taxable assets Assurance of taxable assets and filing cachet Assurance of taxable assets and filing cachet Computation of basal assets and losses Taxation of basal assets and losses Taxation of basal assets and losses Taxation of basal assets and losses: analysis of net losses and aftereffect achievability Unchanged Unchanged New New Modified New Unchanged Modified New Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged Assurance of exemptions Analogue of condoning adolescent Unchanged Unchanged Status: Present Edition Unchanged Unchanged New New New Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged New New New 3-3 14 15 Q/P in Above-mentioned Edition 16 17 21 22 23 24 25 26 27 1-12 Unchanged 13-24 Unchanged 25-36 1 2 5 7 8 10 11 12 13 14 3-4 2009 Anniversary Edition/Test Coffer Question/ Problem Topic ESSAY 1 2 3 4 5 6 7 8 10 11 12 13 14 Territorial adjoin all-around systems of assets taxation Compared Analysis of scholarships for annex absolution purposes Exceptions to the abutment analysis for annex absolution purposes Aftereffect of association acreage law on appliance of the gross assets analysis to affiliated audience Exceptions to the gross assets analysis for condoning adolescent purposes Condoning adolescent and tie-breaker rules Stealth tax: analogue of Adolescent tax: exceptions to its appliance Filing status: allegory of the tax after-effects of altered types Filing status: situations which authorize and do not authorize for arch of domiciliary Filing status: actual apron alteration cachet Ramifications of the acclamation to book a collective Federal assets tax acknowledgment with a adopted conflicting Concentrating deductions from AGI and claiming the accepted acknowledgment in alternating years Correlation amid assorted abutment acceding and acknowledgment for medical costs Status: Present Edition Q/P in Above-mentioned Edition Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged New Unchanged Unchanged Unchanged Unchanged New Unchanged 1 2 3 4 5 6 7 8 9 10 11 12 9 Tax Determination; Claimed and Annex Exemptions An Overivew of Acreage Affairs TRUE/FALSE 1. Currently, the top Federal assets tax bulk in aftereffect is the accomplished it has anytime been. ANS: F The assets tax bulk in aftereffect in 1944-1945 ranged from 23% to 94%. PTS: 1 REF: p. 3-3 3-5 2. As acclimated in the assets tax formula, gross assets would not accommodate the cancellation of a accommodation the aborigine acquired from a bank. ANS: T Borrowing money does not aftereffect in gross income. PTS: 1 REF: Archetype 1 3. Kim, a aborigine of Korea, is a aborigine of the U. S. Any assets Kim receives from acreage he owns in Korea is not accountable to the U. S. assets tax. ANS: F Beneath the all-around arrangement of taxation followed by the U. S. , foreign-sourced assets is accountable to tax. Although Kim is not a resident, he is a aborigine of the U. S. PTS: 1 REF: All-around Tax Issues on p. 3-5. 4. An abatement in the bulk of a taxpayers AGI can access the bulk of medical costs accustomed as a deduction. ANS: T Added medical costs can be deducted back the 7. 5% of AGI attic will be smaller. PTS: 1 REF: Archetype 4 5. Because alone one aborigine is complex in both cases, the accepted acknowledgment for a actual apron is the aforementioned bulk as that for a affiliated actuality filing a abstracted return. ANS: F The bulk of the accepted acknowledgment for a actual apron is the aforementioned as for affiliated bodies filing jointlyor alert that of a affiliated actuality filing separately. PTS: 1 REF: Table 3-1 6. The added accepted acknowledgment for age and amaurosis is the aforementioned bulk for distinct as for affiliated taxpayers. ANS: F For 2008, analyze $1,350 (single) with $1,050 (married). PTS: 1 REF: Table 3-2 3-6 2009 Anniversary Edition/Test Coffer 7. The basal and added accepted deductions are accountable to an anniversary acclimation for inflation. ANS: T The aggrandizement acclimation is fabricated annually to both the basal accepted acknowledgment and the added accepted deduction. PTS: 1 REF: p. 3-8 8. Tad claims his 70-year-old mother as a dependent. The mother may not affirmation an added accepted acknowledgment for her age. ANS: F The mother can affirmation the added accepted acknowledgment for her age. PTS: 1 REF: Archetype 9 9. In 2008, Sally is 72 and single. If she has itemized deductions of $6,000, she should affirmation the accepted acknowledgment alternative. ANS: T The accepted acknowledgment yields $6,800 ($5,450 + $1,350). PTS: 1 REF: Archetype 6 10. Leslie and Morgan are affiliated and book a collective return. Both are over 65 years of age and Leslie is blind. Their accepted acknowledgment for 2008 is $13,000 ($10,900 + $1,050 + $1,050). ANS: F Their accepted acknowledgment is $14,050 ($10,900 + $1,050 + $1,050 + $1,050). PTS: 1 REF: Table 3-1 | Table 3-2 11. Derek is a actual spouse. If he has itemized deductions of $11,500 for 2008, Derek should not affirmation the accepted deduction. ANS: T The accepted acknowledgment would alone accommodate $10,900. PTS: 1 REF: p. 3-8 | Table 3-1 12. Cameron and Carley are ages 70 and 69 and book a collective return. If they accept itemized deductions of 13,300 for 2008, they should not affirmation the accepted deduction. ANS: T The accepted acknowledgment provides alone $13,000 ($10,900 + $1,050 + $1,050). PTS: 1 REF: p. 3-8 | Table 3-1 | Table 3-2 13. Claire, age 66, claims arch of domiciliary filing status. If she has itemized deductions of $8,500 for 2008, she should not affirmation the accepted deduction. ANS: F The accepted acknowledgment yields $9,350 ($8,000 + $1,350). PTS: 1 REF: p. 3-8 | Table 3-1 | Table 3-2 Tax Determination; Claimed and Annex Exemptions An Overivew of Acreage Affairs 14. Enrique is a aborigine of Honduras and a aborigine of the U. S. If he files a U. S. assets tax return, Enrique cannot affirmation the accepted deduction. ANS: F Either U. S. itizenship or address will acknowledgment in adjustment to affirmation the accepted deduction. PTS: 1 REF: p. 3-9 3-7 15. Dan and Donna are bedmate and wife and book abstracted allotment for the year. If Dan itemizes his deductions from AGI, Donna cannot affirmation the accepted deduction. ANS: T If Dan itemizes, Donna charge itemize. PTS: 1 REF: p. 3-9 16. Logan, an 80-year-old widower, dies on January 2, 2008. Alike admitting he lived for alone two days, on his final assets tax acknowledgment for 2008, the abounding basal and added accepted deductions can be claimed. ANS: T No proration of the accepted acknowledgment is all-important in this case. PTS: 1 REF: p. 3-9 17. Benjamin, age 16, is claimed as a abased by his parents. During 2008, he becoming $700 at a car wash. Benjamins accepted acknowledgment is $1,200 ($900 + $300). ANS: F His accepted acknowledgment is the greater of $900 or $1,000 ($700 + $300). PTS: 1 REF: Archetype 10 18. Debby, age 18, is claimed as a abased by her mother. During 2008, she becoming $1,100 in absorption assets on a accumulation account. Debbys accepted acknowledgment is $1,400 ($1,000 + $300). ANS: F Debbys accepted acknowledgment is the minimum accustomed of $900. PTS: 1 REF: Archetype 8 19. Katrina, age 16, is claimed as a abased by her parents. During 2008, she becoming $5,200 as a checker at a grocery store. Her accepted acknowledgment is $5,500 ($5,200 becoming assets + $300). ANS: F Her accepted acknowledgment cannot beat the approved accepted acknowledgment accessible to distinct bodies (or $5,450 for 2008). PTS: 1 REF: Archetype 11 3-8 20. 2009 Anniversary Edition/Test Coffer A abased cannot affirmation a claimed absolution on his or her own return. ANS: T PTS: 1 REF: Archetype 12 21. Back abstracted assets tax allotment are filed by affiliated taxpayers, one apron cannot affirmation the alternative apron as an exemption. ANS: F An absolution is accustomed if the apron has no gross assets and is not claimed as a abased by another. PTS: 1 REF: p. 3-11 22. Butch and Minerva are afar in December of 2008. Back they were not affiliated at the end of the year, they are advised not affiliated for 2008. ANS: T They charge be affiliated at the end of the year (unless one apron dies) in adjustment to be advised married. PTS: 1 REF: Table 3-3 23. For the year a apron dies, the actual apron is advised affiliated for the absolute year for assets tax purposes. ANS: T PTS: 1 REF: Table 3-3 24. In free whether the abutment analysis is met for annex absolution purposes, alone the taxable allocation of a scholarship is considered. ANS: F In applying the abutment test, all of the scholarship is disregarded. Scholarships are advised abnormally for purposes of the gross assets test. PTS: 1 REF: Archetype 23 25. Scott buys his mother a bed-making machine. For purposes of affair the abutment test, Scott can calculation the bulk of the bed-making machine. ANS: T Basal expenditures can be advised in free support. It is affected that the bed-making apparatus is abundantly for the mothers use. PTS: 1 REF: Archetype 26 26. If the alone does not absorb funds that accept been accustomed from addition antecedent (e. g. , Social Security benefits), the unexpended amounts are not advised for purposes of the abutment test. ANS: T The funds are counted alone if acclimated for abutment purposes. PTS: 1 REF: Archetype 24 Tax Determination; Claimed and Annex Exemptions An Overivew of Acreage Affairs 3-9 27. Appliance adopted funds from a mortgage on her home, Lisa provides 55% of her support, while her daughters furnished the rest. Lisa cannot be claimed as a abased beneath a assorted abutment agreement. ANS: T The daughters do not accommodate added than bisected of their mothers support. In this situation, the mother is self-supporting. PTS: 1 REF: Archetype 25 28. Roy and Linda were afar in 2007. The annulment decree awards aegis of their accouchement to Linda but is bashful as to who is advantaged to affirmation them as dependents. If Roy furnished added than bisected of their support, he can affirmation them as dependents. ANS: F Not unless Linda consents. PTS: 1 REF: p. 3-17 29. In 2008, Hal furnishes added than bisected of the abutment of his ex-wife and her father, neither of whom lives with him. The annulment occurred in 2007. Hal may affirmation the father-in-law but not the ex-wife as dependents. ANS: T The father-in-law meets the accord test, but the ex-wife does not. However, except in the year of divorce, an ex-wife can be a abased beneath the affiliate of the domiciliary test. PTS: 1 REF: p. 3-14 30. Afterwards her divorce, Hope continues to abutment her ex-husbands sister, Cindy, who does not alive with her. Hope cannot affirmation Cindy as a dependent. ANS: F For purposes of the accord test, annulment does not change in-law status. PTS: 1 REF: p. 3-14 31. Darren, age 20 and not disabled, earns $4,500 during 2008. Darrens parents cannot affirmation him as a abased unless he is a full-time student. ANS: T Actuality age 20, Darren cannot be a condoning adolescent unless he is a full-time student. As a condoning child, he is absolved from the gross assets test. PTS: 1 REF: p. 3-12 32. Keith, age 17 and single, earns $3,800 during 2008. Keiths parents can affirmation him as a abased alike if he does not alive with them. ANS: F Keith does not accommodated the analogue of a condoning child; so the gross assets analysis does apply. PTS: 1 REF: p. 3-12 | p. 3-14 3-10 2009 Anniversary Edition/Test Coffer 33. Sarah furnishes added than 50% of the abutment of her son and daughter-in-law who alive with her. If the son and daughter-in-law book a collective return, Sarah cannot affirmation them as dependents. ANS: F If assertive altitude are annoyed (e. g. they did not accept to book but did so to access a refund), the son and daughter-in-law can authorize as Sarahs dependents. PTS: 1 REF: Archetype 28 34. Hernando, a aborigine of California, supports his parents who are association of Mexico but citizens of El Salvador. Hernando can affirmation his parents as dependents. ANS: T The parents are association of Mexico. PTS: 1 REF: p. 3-17 35. Carol lives in Michigan and supports her nephew who is a Canadian aborigine that resides in Ontario, Canada. Carol may not affirmation her nephew as a dependent. ANS: F As a aborigine of Canada, Carols nephew meets the citizenship or address test. PTS: 1 REF: p. 3-17 36. Stealth taxes are directed at academy assets taxpayers. ANS: T Such stealth taxes as the phaseout of exemptions do not activate until taxpayers ability cogent assets levels. PTS: 1 REF: Tax in the News on p. 3-20 37. The phaseout of the allowances of claimed and annex exemptions for assertive taxpayers is appointed to be eliminated. ANS: T But the abolishment is not completed until 2010. PTS: 1 REF: p. 3-18 38. The adolescent tax does not administer as to a adolescent whose becoming assets is added than one-half of his or her support. ANS: T PTS: 1 REF: p. 3-23 39. Already a adolescent alcove age 19, the adolescent tax no best applies. ANS: F The adolescent tax does administer if the adolescent is a full-time apprentice beneath age 24. PTS: 1 REF: p. -23 Tax Determination; Claimed and Annex Exemptions An Overivew of Acreage Affairs 3-11 40. Back the adolescent tax applies and the parents book abstracted returns, the applicative ancestor (for free the affectionate tax) is the one with the greater taxable income. ANS: T PTS: 1 REF: p. 3-25 41. Back the adolescent tax applies, the adolescent charge not book an assets tax acknowledgment as the childs assets will be appear on the parents return. ANS: F The adolescent charge not book alone if the affectionate acclamation (if available) picks up all of the childs income. PTS: 1 REF: p. 3-24 42. A adolescent who has unearned assets of $1,800 or beneath cannot be accountable to the adolescent tax. ANS: T PTS: 1 REF: p. 3-23 43. A adolescent who is affiliated cannot be accountable to the adolescent tax. ANS: F Alone if he or she files a collective acknowledgment is such adolescent absolved from the adolescent tax. PTS: 1 REF: p. 3-23 44. An alone aborigine uses a budgetary year February 1-January 31. The due date of this taxpayers Federal assets tax acknowledgment is June 15 of anniversary tax year. ANS: F The tax acknowledgment is due on or afore the fifteenth day of the fourth ages afterward the end of the budgetary year. Here, the due date is May 15. PTS: 1 REF: p. 3-27 45. Actual apron filing cachet begins in the year in which the asleep apron died. ANS: F Actual apron filing cachet begins in the year afterward the year of death. PTS: 1 REF: Archetype 38 46. In January 2008, Jakes wife dies and he does not remarry. For tax year 2008, Jake may not be able to use the filing cachet accessible to affiliated bodies filing collective returns. ANS: T If the abettor of his wifes acreage does not accede to filing a collective return, Jakes alone advantage is to book appliance married, filing abstracted status. PTS: 1 REF: p. 3-30 3-12 2009 Anniversary Edition/Test Coffer 47. For tax purposes, affiliated bodies filing abstracted allotment are advised the aforementioned as distinct taxpayers. ANS: F Distinct taxpayers can adore abounding tax allowances that are bare to affiliated bodies filing separatelye. g. , becoming assets credit, acclaim for adolescent and abased affliction expenses, acknowledgment for absorption paid on apprentice loans. PTS: 1 REF: p. 3-29 | p. 3-30 48. Katelyn is afar and maintains a domiciliary in which she and her daughter, Crissa, live. Crissa, age 22, earns $11,000 during 2008 as a model. Katelyn qualifies for arch of domiciliary filing status. ANS: F Crissa is not Katelyns dependent. She fails the age analysis for condoning adolescent purposes and the gross assets analysis for the condoning about category. PTS: 1 REF: Archetype 41 49. Mike is afar and maintains a home in which he and his abased niece live. Mike qualifies for arch of domiciliary filing status. ANS: T To be arch of household, the abased complex charge accommodated the accord test. Such is the case with a niece. PTS: 1 REF: Archetype 39 50. In acceding of assets tax consequences, deserted spouses are advised the aforementioned way as affiliated bodies filing abstracted returns. ANS: F An deserted apron is advised as a distinct taxpayer. Consequently, an deserted apron qualifies for arch of domiciliary filing status. PTS: 1 REF: p. 3-31 51. In 2008, Gordon awash his claimed use auto for a blow of $6,000. He additionally awash a claimed brand accumulating for a accretion of $7,000. As a aftereffect of these sales, $7,000 is accountable to assets tax. ANS: T Gordon charge admit a basal accretion of $7,000. The $6,000 blow on the auction of the claimed use auto is nondeductible. PTS: 1 REF: Archetype 43 52. In some cases, the tax on abiding basal assets can be as low as 0%. ANS: T If the taxpayers tax bracket is 15% (or less), the 0% bulk applies. PTS: 1 REF: Archetype 46 Tax Determination; Claimed and Annex Exemptions An Overivew of Acreage Affairs 3-13 53. Accretion on the auction of collectibles captivated for added than 12 months is accountable to tax at a bulk no academy than 28%. ANS: T PTS: 1 REF: p. 3-33 54. For 2008, Stuart has a concise basal loss, a collectible abiding basal gain, and a longterm basal accretion from acreage captivated as investment. The concise blow is aboriginal activated to the collectible basal gain. ANS: T PTS: 1 REF: Archetype 48 MULTIPLE CHOICE 1. Which, if any, of the afterward is a acknowledgment from AGI? a. Keep payments. b. Adolescent abutment payments. c. Unreimbursed agent expenses. d. Blow on the auction of a claimed automobile. e. None of the above. ANS: C Keep payments (choice a. ) are deductions for AGI. Adolescent abutment payments (choice b. ) and claimed basal losses (choice d. ) are nondeductible items. PTS: 1 REF: Archetype 2 | Archetype 43 | Exhibit 3-3 2. Which, if any, of the afterward is a acknowledgment for AGI? a. Keep payments. b. Absorption on home mortgage. c. Unreimbursed agent expenses. d. Charitable contributions. e. None of the above. ANS: A Except for keep (choice a. ), all alternative items (choices b. , c. , and d. ) are deductions from AGI. PTS: 1 REF: p. 3-6 | Exhibit 3-3 3. During 2008, Marie had the afterward transactions: Bacon Coffer accommodation (proceeds acclimated to buy claimed auto) Keep accustomed Adolescent abutment accustomed Bequest from asleep aunt $40,000 10,000 6,000 12,000 50,000 3-14 Maries AGI is: a. $40,000. b. $46,000. c. $52,000. d. $96,000. e. None of the above. 2009 Anniversary Edition/Test Coffer ANS: B $40,000 (salary) + $6,000 (alimony) = $46,000. The bequest and adolescent abutment are exclusions. Amounts adopted are not income. PTS: 1 REF: Archetype 1 | Exhibit 3-1 4. During 2008, Sam had the afterward transactions: Bacon Absorption assets on General Electric Corporation bonds Allowance from parents Addition to acceptable IRA Activity accomplishment Sams AGI is: a. $59,000. b. $61,000. c. $65,000. d. $85,000. e. None of the above. ANS: E $60,000 (salary) + $2,000 (interest on GE bonds) $5,000 (IRA contribution) + $3,000 (lottery winnings) = $60,000. The allowance from his parents is a nontaxable exclusion. PTS: 1 REF: p. 3-5 | Exhibit 3-1 | Exhibit 3-2 $60,000 2,000 24,000 5,000 3,000 5. During 2008, Colin had the afterward transactions: Bacon Absorption assets on Burghal of Denver bonds Amercement for claimed abrasion (car accident) Castigating amercement (same car accident) Banknote assets from General Motors Corporation banal Colins AGI is: a. $74,000. b. $120,500. c. $124,000. d. $124,500. e. $224,000. ANS: C $70,000 (salary) + $50,000 (punitive damages) + $4,000 (cash dividends) = $124,000. The amercement from claimed abrasion and the borough band absorption are nontaxable exclusions. PTS: 1 REF: Archetype 2 | Exhibit 3-1 | Exhibit 3-2 $ 70,000 500 100,000 50,000 4,000 Tax Determination; Claimed and Annex Exemptions An Overivew of Acreage Affairs 6. In 2008, Walter had the afterward transactions: Bacon Basal blow from a banal advance Affective bulk to change jobs Accustomed affirmation of $10,000 accommodation he fabricated to his brother in 2004 (includes absorption of $1,000) Acreage taxes on claimed address Walters AGI is: a. $67,000. b. $68,000. c. $69,000. d. $78,000. e. None of the above. $80,000 (4,000) (10,000) 11,000 2,000 3-15 ANS: B $80,000 (salary) $3,000 (allowable blow on banal investment) $10,000 (moving expenses) + $1,000 (interest on loan) = $68,000. The bare blow of $1,000 from the banal advance auction can be agitated over to 2009. The accommodation affirmation of $10,000 is a acknowledgment of basal and has no aftereffect on gross income. Acreage taxes paid on a claimed address is a acknowledgment from AGI and has no appulse on the assurance of AGI. PTS: 1 REF: p. 3-5 | p. 3-34 | Exhibit 3-3 7. Monica, age 18, is claimed by her parents as a dependent. During 2008, she had absorption assets from a coffer accumulation annual of $1,000 and assets from a part-time job of $4,500. Monicas taxable assets is: a. $4,500 $4,800 = $0. b. $5,500 $5,350 = $150. c. $5,500 $4,800 = $700. d. $5,500 $900 $3,400 = $1,200. e. None of the above. ANS: C Monicas accepted acknowledgment is $4,500 (earned income) + $300 = $4,800. Thus, her taxable assets is $700 ($5,500 $4,800). She is not acceptable for a claimed exemption. PTS: 1 REF: Archetype 10 8. Tony, age 15, is claimed as a abased by his grandmother. During 2008, Tony had absorption assets from General Motors Corporation bonds of $1,000 and antithesis from a part-time job of $700. Tonys taxable assets is: a. $0. b. $1,700 $700 $900 = $100. c. $1,700 $1,000 = $700. d. $1,700 $900 = $800. e. None of the above. ANS: C Tonys accepted acknowledgment of $1,000 ($700 + $300) partially offsets his gross assets of $1,700, consistent in taxable assets of $700. PTS: 1 REF: Archetype 10 3-16 2009 Anniversary Edition/Test Coffer 9. Anna is a widow, age 74 and blind, who is claimed as a abased by her son. During 2008, she accustomed $4,800 in Social Security benefits, $1,200 in coffer interest, and $1,800 in banknote assets from stocks. Annas taxable assets for 2008 is: a. $3,000 $900 $2,700 = $0. b. $3,000 $2,600 = $400. c. $3,000 $900 $1,350 = $750. d. $7,800 $900 $2,700 = $4,200. e. None of the above. ANS: A Although Anna has no becoming income, she is advantaged to a minimum approved accepted acknowledgment of $900. She additionally is accustomed added accepted deductions for age and amaurosis of $2,700 ($1,350 + $1,350). At this akin of income, the Social Security allowances are a nontaxable exclusion. PTS: 1 REF: Archetype 9 | Exhibit 3-1 | Table 3-2 10. Grace, age 67 and single, is claimed as a abased on her sons tax return. During 2008, she had absorption assets of $2,400 and $700 of becoming assets from babyish sitting. Graces taxable assets is: a. $150. b. $750. c. $850. d. $2,100. e. None of the above. ANS: B $3,100 gross assets greater of $900 or ($700 becoming assets + $300) $1,350 (additional accepted acknowledgment for age 65 and older) = $750. She is not acceptable for a claimed exemption. PTS: 1 REF: Archetype 9 11. Troy and Edie are affiliated and beneath 65 years of age. During 2008, they accouter added than bisected of the abutment of their 18-year old daughter, Jobeth, who lives with them. Jobeth earns $15,000 from a part-time job, best of which she sets abreast for approaching academy expenses. Troy and Edie additionally accommodate added than bisected of the abutment of Troys accessory who does not alive with them. Edies father, who died on January 3, 2008, at age 80, has for abounding years able as their dependent. How abounding claimed and annex exemptions should Troy and Edie claim? a. Two. b. Three. c. Four. d. Five. e. None of the above. ANS: C Four (Troy, Edie, Jobeth, and the father). Jobeth can be claimed because as a condoning adolescent she is not accountable to the gross assets test. Troys accessory does not accommodated the accord analysis and is not a affiliate of their household. It is affected that Edies father, as was accurate in the past, able as a abased up to the point of death. PTS: 1 REF: p. 3-11 | p. 3-12 | p. 3-14 Tax Determination; Claimed and Annex Exemptions An Overivew of Acreage Affairs 3-17 12. Evan and Eileen Carter are bedmate and wife and book a collective acknowledgment for 2008. Both are beneath 65 years of age. They accommodate added than bisected of the abutment of their daughter, Pamela (age 25), who is a full-time medical student. Pamela receives a $3,400 scholarship accoutrement her allowance and lath at college. They accouter all of the abutment of Belinda (Evans grandmother), who is age 70 and lives in a nursing home. They additionally abutment Peggy (age 66), who is a acquaintance of the ancestors and lives with them. How abounding claimed and annex exemptions may the Carters claim? a. Two. b. Three. c. Four. d. Five. e. None of the above. ANS: D Five (Evan, Eileen, Pamela, Belinda, and Peggy). Claimed exemptions for the Carters and annex exemptions for the rest. Pamela is not a condoning childalthough a full-time student, she is not beneath age 24. Pamela does accommodated the condoning about class alike admitting the blazon of scholarship aid she receives is taxable (the gross assets analysis is satisfied). Belinda is not a affiliate of the domiciliary but satisfies the accord test. Peggy does not amuse the accord analysis but is a affiliate of the household. PTS: 1 REF: p. 3-11 | p. 3-12 | p. 3-14 13. In which, if any, of the afterward situations may the alone not be claimed as a abased of the taxpayer? a. A aloft apron who lives with the aborigine (divorce took address this year). b. A stepmother who does not alive with the taxpayer. c. A affiliated babe who lives with the taxpayer. d. A bisected brother who does not alive with the aborigine and is a aborigine and aborigine of Canada. e. A accessory who lives with the taxpayer. ANS: A In the year of divorce, a aloft apron cannot authorize beneath the affiliate of the domiciliary analysis (choice a. ). The stepmother meets the accord analysis (choice b. ). A affiliated babe can be claimed as connected as she does not breach the collective acknowledgment analysis (choice c. ). In the case of the bisected brother, Canada or Mexico can amuse the address analysis (choice d. ). A accessory does not amuse the accord analysis so charge be a affiliate of the domiciliary (choice e. ). PTS: 1 REF: p. 3-14 | p. 3-17 3-18 2009 Anniversary Edition/Test Coffer 14. During 2008, Jen (age 66) furnished added than 50% of the abutment of the afterward persons: Jens accepted bedmate who has no assets and is not claimed by addition abroad as a dependent. Jens stepson (age 18) who lives with her and earns $6,000 as a ball instructor. He alone out of academy a year ago. Jens ex-husband who does not alive with her. The annulment occurred two years ago. Jens aloft brother-in-law who does not alive with her. Presuming all alternative annex tests are met, on a abstracted acknowledgment how abounding claimed and annex exemptions may Jen claim? a. Two. b. Three. c. Four. d. Five. e. None of the above. ANS: C All of the bodies listed except the ex-husband accommodated either the accord or affiliate of the domiciliary tests. The accepted bedmate qualifies as he has no assets and is not claimed as a abased by addition else. The stepson avoids the gross assets limitation back he is a condoning adolescent beneath 19 years of age. PTS: 1 REF: p. 3-11 | p. 3-12 | p. 3-14 15. A condoning adolescent cannot include: a. A adopted alien. b. A affiliated son who files a collective return. c. An uncle. d. A babe who is abroad at college. e. A brother who is 28 years of age and disabled. ANS: C A condoning adolescent can be a adopted conflicting beneath the adopted adolescent barring (choice a. ). The filing of a collective acknowledgment is not baleful if filing is not adapted and its purpose is to access a tax acquittance (choice b. ). An uncle does not accommodated the accord analysis (choice c. ). A acting absence is permissible beneath the address analysis (choice d. ). A brother meets the accord test, and affliction waives the age analysis (choice e. ). PTS: 1 REF: p. 3-12 | p. 3-17 16. Ellen, age 12, lives in the aforementioned domiciliary with her father, grandfather, and uncle. The bulk of advancement the domiciliary is provided by her grandfathering (40%) and her uncle (60%). Disregarding tie-breaker rules, Ellen is a condoning adolescent as to: a. All parties complex (i. e. , father, grandfather, and uncle). b. Alone her grandfathering and uncle. c. Alone her uncle. d. Alone her father. e. None of the above. ANS: A Beneath the address and accord tests, Ellen is a condoning adolescent as to all parties. The bulk of abutment provided by anniversary actuality is not relevant. PTS: 1 REF: p. 3-12 Tax Determination; Claimed and Annex Exemptions An Overivew of Acreage Affairs 17. Millie, age 80, is accurate during the accepted year as follows: Weston (a son) Faith (a daughter) Jake (a cousin) Brayden (unrelated abutting ancestors friend) Percent of Abutment 10% 35% 35% 20% 3-19 During the year, Millie lives with Brayden. Beneath a assorted abutment agreement, announce which parties can authorize to affirmation Millie as a dependent. a. Weston, Faith, Jake, and Brayden. b. Faith and Brayden. c. Weston and Faith. d. Faith, Jake, and Brayden. e. None of the above. ANS: B Weston does not authorize because he does not accord added than 10% of the support. (This eliminates choices a. and c. ) Jake does not authorize because he satisfies neither the accord nor affiliate of the domiciliary tests. (This eliminates choices a. and d. Brayden does not accommodated the accord test, but he does amuse the affiliate of the domiciliary test. PTS: 1 REF: Archetype 27 18. The Hutters filed a collective acknowledgment for 2008. They accommodate added than 50% of the abutment of Carla, Melvin, and Aaron. Carla (age 18) is a accessory and earns $4,000 from a part-time job. Melvin (age 25) is their son and is a full-time law student. He accustomed from the university a $3,800 scholarship for tuition. Aaron is a brother who is a aborigine of Israel but resides in Mexico. Carla and Melvin alive with the Hutters. How abounding claimed and annex exemptions can the Hutters affirmation on their Federal assets tax return? a. Two. b. Three. c. Four. d. Five. e. None of the above. ANS: C The Hutters can affirmation two claimed exemptions and two annex exemptions. Carla is not a condoning adolescent and is accountable to the gross assets test. Melvin is not a condoning adolescent due to age (not beneath 24) but is a condoning relative. meets Melvin the gross assets analysis back this blazon of scholarship is nontaxable. Aaron meets the address requirement. PTS: 1 REF: p. 3-11 | p. 3-12 | p. 3-17 | Archetype 19 | Archetype 21 3-20 2009 Anniversary Edition/Test Coffer 19. For the condoning about aphorism (for annex absolution purposes): a. The abased charge be beneath age 19 or a full-time apprentice beneath age 24. b. The abased charge abide with the aborigine claiming the exemption. c. The abased charge not be accompanying to the aborigine claiming the exemption. d. The abased charge be a aborigine or aborigine of the U. S. e. None of the above. ANS: C Choices a. and b. chronicle to the condoning adolescent rules. An different actuality can authorize if a affiliate of taxpayers domiciliary (choice c. ). A abased can be a aborigine or aborigine of Canada or Mexico (choice d. ). PTS: 1 REF: Concept Summary 3-1 20. For tax year 2008, an barring to the adolescent tax rules includes: a. A adolescent who is a full-time student. b. A adolescent who is affiliated and files a collective return. c. A adolescent who is 18 years old. d. A adolescent whose unearned assets is added than bisected of his or her support. e. None of the above. ANS: B Apprentice cachet (choice a. ) is accordant alone to include, in the appliance of the tax, those at atomic 19 but beneath age 24. Best c. relates to pre-2008 rules. Best d. would be an barring if the advertence was to becoming assets (not unearned income). PTS: 1 REF: p. 3-23 21. Kyle, whose wife died in December 2005, filed a collective tax acknowledgment for 2005. He did not remarry, but has connected to advance his home in which his two abased accouchement live. What is Kyles filing cachet as to 2008? a. Arch of household. b. Actual spouse. c. Single. d. Affiliated filing separately. e. None of the above. ANS: A Kyle, who filed a collective acknowledgment in 2005, was advantaged to book as a actual apron in 2006 and 2007. In 2008, he will be advantaged to book as a arch of household. PTS: 1 REF: Archetype 38 Tax Determination; Claimed and Annex Exemptions An Overivew of Acreage Affairs 3-21 22. Emily, whose bedmate died in December 2008, maintains a domiciliary in which her abased babe lives. Which (if any) of the afterward is her filing cachet for the tax year 2008? (Note: Emily is the abettor of her husbands estate. ) a. Single. b. Married, filing separately. c. Actual spouse. d. Arch of household. e. Married, filing jointly. ANS: E As the executor, it is absurd that she would debris to accord to a collective return. Back she is accounted affiliated in the year of her husbands death, she cannot book as distinct (choice a. ) or arch of domiciliary (choice d. ). She does not authorize for actual apron cachet until the abutting year (i. e. , 2009). PTS: 1 REF: p. 3-30 23. Which of the afterward taxpayers may book as a arch of domiciliary in 2008? Ron provides all the abutment for his mother, Betty, who lives by herself in an accommodation in Fort Lauderdale. Ron pays the hire and alternative costs for the accommodation and appropriately claims his mother as a dependent. Tammy provides over one-half the abutment for her 18-year old brother, Dan. Dan becoming $4,200 in 2008 alive at a fast aliment restaurant and is extenuative his money to appear academy in 2009. Dan lives in Tammys home. Joes wife larboard him backward in December of 2007. No acknowledged activity was taken and Joe has not heard from her in 2008. Joe accurate his 6-year-old son, who lived with him throughout 2008. a. Ron only. b. Tammy only. c. Joe only. d. Ron and Joe only. e. Ron, Tammy, and Joe. ANS: E Ron may book as a arch of household. His mother is not adapted to alive in his domiciliary in adjustment for him to authorize as a arch of household. Tammy can affirmation Dan as a abased because Dan is a condoning adolescent and is not accountable to the gross assets requirement. Joe can book as a arch of domiciliary beneath the deserted apron rules. PTS: 1 REF: p. 3-30 | p. 3-31 3-22 2009 Anniversary Edition/Test Coffer 24. Wilma is affiliated to Herb, who deserted her in 2006. She has not apparent or announced with him back June of that year. She maintains a domiciliary in which she and her two abased accouchement live. Which of the afterward statements about Wilmas filing cachet in 2008 is correct? a. Wilma can use the ante for distinct taxpayers. b. Wilma can book a collective acknowledgment with Herb. c. Wilma can book as a actual spouse. d. Wilma can book as a arch of household. e. None of the aloft statements is appropriate. ANS: D Wilma meets the deserted apron rules. Therefore, she can book as a arch of household. Otherwise, her filing cachet would be married, filing separately. PTS: 1 REF: p. 3-31 25. Arnold is affiliated to Sybil, who deserted him in 2006. He has not apparent or announced with her back April of that year. He maintains a domiciliary in which their son, Evans, lives. Evans is age 25 and earns over $20,000 anniversary year. For tax year 2008, Arnolds filing cachet is: a. Married, filing jointly. b. Married, filing separately. c. Arch of household. d. Actual spouse. e. Single. ANS: B Arnold cannot book accordingly after Sybils accord (choice a. ). He is not an deserted apron back Evans is not a abased child. Evans cannot be claimed as a condoning adolescent (age test) and is not a condoning about (gross assets test). Because Arnold is still advised as actuality married, his alone advantage is married, filing alone (choice b. ). PTS: 1 REF: p. 3-29 to 3-32 26. During the year, Kim awash the afterward assets: business auto for a $1,000 loss, banal advance for a $1,000 loss, and amusement yacht for a $1,000 loss. Presuming able income, how abundant of these losses may Kim claim? a. $0. b. $1,000. c. $2,000. d. $3,000. e. None of the above. ANS: C The blow on the business auto of $1,000 is an accustomed loss, while the blow on the banal advance of $1,000 is a basal loss. The blow on the yacht of $1,000 is claimed and, therefore, cannot be deducted. PTS: 1 REF: p. 3-33 | Archetype 43 | Archetype 44 Tax Determination; Claimed and Annex Exemptions An Overivew of Acreage Affairs 27. Perry is in the 33% tax bracket. During 2008, he had the afterward basal asset transactions: Accretion from the auction of a brand accumulating (held for 10 years) Accretion from the auction of an advance in acreage (held for 4 years) Accretion from the auction of banal advance (held for 8 months) Perrys tax after-effects from these assets are as follows: a. (15% $10,000) + (28% $30,000) + (33% $4,000). b. (15% $30,000) + (33% $4,000). c. (5% $10,000) + (28% $30,000) + (33% $4,000). d. (15% $40,000) + (33% $4,000). e. None of the above. 30,000 10,000 4,000 3-23 ANS: A Collectibles are burdened at a best of 28%, while abiding basal assets are accountable to a top bulk of 15%. Concise basal assets are advised the aforementioned as accustomed income. PTS: 1 REF: p. 3-33 28. Kirby is in the 15% tax bracket and had the afterward basal asset affairs during 2008: Abiding accretion from the auction of a bread accumulating Abiding accretion from the auction of a acreage advance Concise accretion from the auction of a banal advance Kirbys tax after-effects from these assets are as follows: a. (5% $10,000) + (15% $13,000). b. (0% $10,000) + (15% $13,000). c. (15% $13,000) + (28% $11,000). d. (15% $23,000). . None of the above. ANS: B Collectibles and concise basal assets are burdened at Joans approved 15% tax bracket, while longterm basal assets are accountable to a bulk of 0% (5% above-mentioned to 2008). PTS: 1 REF: p. 3-33 $11,000 10,000 2,000 29. For the accepted year, David has bacon assets of $80,000 and the afterward acreage transactions: Banal advance sales Abiding basal accretion Concise basal blow Blow on auction of camper (purchased 4 years ago and acclimated for ancestors vacations) $ 9,000 (11,000) (2,000) 3-24 2009 Anniversary Edition/Test Coffer What is Davids AGI for the accepted year? a. $76,000. b. $77,000. c. $78,000. d. $89,000. e. None of the above. ANS: C The blow from the auction of the camper is claimed and, therefore, is not deductible. Applique the concise basal blow of $11,000 adjoin the abiding basal accretion of $9,000 produces a net concise basal blow of $2,000. Offsetting the basal blow adjoin accustomed assets yields AGI of $78,000 ($80,000 $2,000). PTS: 1 REF: Archetype 43 | Archetype 49 30. During 2008, Trevor has the afterward basal transactions: LTCG Abiding collectible accretion STCG STCL $ 6,000 2,000 4,000 10,000 Afterwards the applique process, the afterward results: a. Abiding collectible accretion of $2,000. b. LTCG of $6,000, Abiding collectible accretion of $2,000, and a STCL of $6,000. c. LTCG of $6,000, Abiding collectible accretion of $2,000, and a STCL aftereffect to 2009 of $3,000. d. LTCG of $2,000. e. None of the above. ANS: D First, the STCG and STCL are combined, consistent in a STCL of $6,000. Of this STCL, $2,000 is activated adjoin the collectible accretion of $2,000, and the $4,000 antithesis is activated adjoin the LTCG of $6,000. The aftereffect is a LTCG of $2,000. PTS: 1 MATCHING Bout the statements that chronicle to anniversary other. Note: Best L may be acclimated added than once. a. Not accessible to 65-year old aborigine who itemizes b. Barring for U. S. citizenship or address analysis (for annex absolution purposes) c. Largest basal accepted acknowledgment accessible to a abased who has no becoming assets d. Not advised for annex absolution purposes e. Qualifies for arch of domiciliary filing cachet f. A adolescent (age 15) who is a abased and has alone becoming income. g. Not advised in applying abutment analysis (for annex absolution purposes) h. Phaseout of claimed and annex exemptions i. Unmarried aborigine who can use the aforementioned tax ante as affiliated bodies filing accordingly j. Barring to the abutment analysis (for annex absolution purposes) k. A adolescent (age 16) who is a abased and has net unearned assets l. No actual bout provided REF: Archetype 48 Tax Determination; Claimed and Annex Exemptions An Overivew of Acreage Affairs 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Abandoned apron Stealth tax Added accepted acknowledgment Scholarship funds Actual apron Alliance amends Canada and Mexico Age of a condoning about $900 Adolescent tax applies Adolescent tax does not administer Assorted abutment acceding 3-25 1. ANS: E PTS: 1 REF: p. 3-31 NOT: An deserted apron qualifies for arch of domiciliary filing status. 2. ANS: H PTS: 1 REF: p. 3-20 NOT: An archetype of a stealth tax is the phaseout of exemptions. Tax in the News on p. 3-20 3. ANS: A PTS: 1 REF: p. 3-8 NOT: A aborigine who itemizes (claims deductions from AGI) is not acceptable for either the basal or added accepted deductions. 4. ANS: G PTS: 1 REF: p. 3-14 | p. -15 NOT: Scholarship funds are not advised back applying the abutment test. The taxable allocation of scholarships are taken into annual in applying the gross assets test. 5. ANS: I PTS: 1 REF: p. 3-30 6. ANS: L PTS: 1 REF: p. 3-29 NOT: The acceptable alliance amends activated in some cases area affiliated bodies filed a collective return. 7. ANS: B PTS: 1 REF: p. 3-17 NOT: Citizenship or address in these countries will suffice. 8. ANS: D PTS: 1 REF: p. 3-19 9. ANS: C PTS: 1 REF: p. 3-10 NOT: This bulk could be greater if becoming assets exists. 10. ANS: K PTS: 1 REF: p. 3-25 11. ANS: F PTS: 1 REF: p. 3-23 NOT: The adolescent tax is extraneous in situations area the adolescent has no unearned income. 12. ANS: J PTS: 1 REF: p. -15 Bout the statements that chronicle to anniversary other. Note: Best L may be acclimated added than once. a. Accessible to a 70-year-old ancestor claimed as a abased by his son b. The accomplished assets tax bulk applicative to a aborigine c. Equal to tax accountability disconnected by taxable assets d. Not acceptable for the accepted acknowledgment e. No one able aborigine meets the abutment analysis f. Taxpayers accessory does not authorize g. A abased adolescent (age 17) who has alone unearned assets h. Accomplished applicative bulk is 35% i. Applicative bulk could be as low as 0% j. Best bulk is 28% k. Assets from adopted sources not accountable to tax l. No actual bout provided 3-26 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 009 Anniversary Edition/Test Coffer Assorted abutment acceding Adolescent tax not imposed Adopted conflicting Tax Bulk Schedule Accretion on collectibles (held added than one year) Marginal assets tax bulk Average assets tax bulk Added accepted acknowledgment Accord analysis (for annex absolution purposes) Abiding basal assets All-around arrangement of taxation Territorial arrangement of taxation 13. ANS: E PTS: 1 REF: p. 3-15 NOT: A able aborigine is one who satisfies the more-than-10% addition analysis and meets all of the alternative requirements for claiming a annex exemption. 14. ANS: L PTS: 1 REF: p. 3-23 NOT: The adolescent tax can administer back the adolescent has unearned income. 15. ANS: D PTS: 1 REF: p. 3-9 16. ANS: H PTS: 1 REF: p. 3-21 17. ANS: J PTS: 1 REF: p. 3-33 18. ANS: B PTS: 1 REF: p. 3-21 19. ANS: C PTS: 1 REF: p. 3-21 20. ANS: A PTS: 1 REF: Archetype 9 21. ANS: F PTS: 1 REF: p. 3-14 NOT: A accessory can authorize as a abased beneath the affiliate of the domiciliary analysis but not beneath the accord test. 22. ANS: I PTS: 1 REF: Archetype 46 23. ANS: L PTS: 1 REF: p. 3-5 NOT: All-around Tax Issues on p. 3-5 24. ANS: K PTS: 1 REF: p. 3-5 NOT: All-around Tax Issues on p. 3-5 Regarding annex exemptions, allocate anniversary annual in one of the four categories: a. Could be a condoning child. b. Could be a condoning relative. c. Could be either a condoning adolescent or a condoning relative. d. Could be neither a condoning adolescent nor a condoning relative. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. A son lives with aborigine and is independent A babe who does not alive with aborigine A granddaughter, who lives with taxpayer, is 24 years old, and a full-time apprentice An uncle who lives with aborigine A nephew who lives with aborigine A niece who does not alive with aborigine A bisected brother who lives with aborigine A accessory who does not alive with aborigine A footfall babe who lives with aborigine A daughter-in-law who does not alive with aborigine A ancestors acquaintance who is accurate by and lives with aborigine An ex-husband (divorce occurred two years ago) who lives with aborigine Tax Determination; Claimed and Annex Exemptions An Overivew of Acreage Affairs 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: D B B B C B C D C B B B PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: 1 1 1 1 1 1 1 1 1 1 1 1 REF: REF: REF: REF: REF: REF: REF: REF: REF: REF: REF: REF: p. 3-11 to 3-15 p. 3-11 to 3-15 p. 3-11 to 3-15 p. 3-11 to 3-15 p. 3-11 to 3-15 p. 3-11 to 3-15 p. 3-11 to 3-15 p. 3-11 to 3-15 p. 3-11 to 3-15 p. 3-11 to 3-15 p. 3-11 to 3-15 p. 3-11 to 3-15 3-27 PROBLEM 1. Eva had the afterward affairs during 2008: Bacon Absorption assets on bonds Issued by Burghal of Baltimore Issued by Dell Corporation Keep accustomed Adolescent abutment accustomed Burghal and accompaniment assets taxes paid Coffer accommodation acquired to pay acclaim agenda debt What is Evas AGI for 2008? ANS: $86,000. $80,000 (salary) + $3,000 (interest on Dell Corporation bonds) + $3,000 (alimony received). Absorption on the Burghal of Baltimore bonds and the adolescent abutment payments are exclusions from gross income. The coffer accommodation has no tax effect, as Eva is answerable to accord the bulk borrowed. Burghal and accompaniment assets taxes are deductions from AGI. PTS: 1 REF: Archetype 1 | Archetype 2 | Exhibit 3-1 to 3-3 $80,000 $2,000 3,000 5,000 3,000 9,000 4,000 10,000 3-28 2009 Anniversary Edition/Test Coffer 2. Scott had the afterward affairs for 2008: Bacon Keep paid Accretion from car blow Claimed abrasion amercement Castigating amercement Allowance from parents Acreage sales Blow on auction of baiter (used for amusement and endemic 4 years) Accretion on auction of GMC banal (held for 8 months as an investment) What is Scotts AGI for 2008? ANS: $164,000. $90,000 (salary) $6,000 (alimony paid) + $75,000 (punitive accident award) + $5,000 (short-term basal accretion on the auction of banal investment). The claimed abrasion accretion and the allowance from Scotts parents are exclusions from gross income. The blow from the auction of the baiter is claimed and, therefore, nondeductible. The concise basal accretion on the auction of the GMC banal is burdened in abounding as accustomed income. PTS: 1 REF: p. 3-6 | p. 3-33 | Exhibit 3-1 | Exhibit 3-2 | Archetype 43 $ 90,000 6,000 $50,000 75,000 125,000 24,000 ($ 3,000) 5,000 2,000 3. Kristen had the afterward affairs for 2008: Bacon Affective costs incurred to change jobs Bequest accustomed from asleep uncle Activity allowance accretion from action on uncles activity (Kristen was called the beneficiary) Banknote award-winning from abbey raffle Acquittal of accompaniment assets tax What is Kristens AGI for 2008? ANS: $76,000. $80,000 (salary) + $5,000 (raffle prize) $9,000 (moving expenses). The bequest and activity allowance accretion are exclusions from gross income. The acquittal by Kristen of her accompaniment assets tax is a acknowledgment from AGI. Thus, it does not access into the assurance of AGI. PTS: 1 REF: p. 3-5 | Exhibits 3-1 to 3-3 $ 80,000 9,000 400,000 100,000 5,000 4,000 4. Warren, age 17, is claimed as a abased by his father. In 2008, Warren has allotment assets of $1,500 and earns $400 from a part-time job. . b. What is Warrens taxable assets for 2008? Suppose Warren becoming $1,200 (not $400) from the part-time job. What is Warrens taxable assets for 2008? Tax Determination; Claimed and Annex Exemptions An Overivew of Acreage Affairs 3-29 ANS: a. $1,000. Warrens accepted acknowledgment is the greater of $400 (earned income) + $300 or $900. Thus, $1,500 + $400 $900 = $1,000 taxable income. b. $1,200. Warrens accepted acknowledgment now becomes $1,500 ($1,200 + $300). Thus, $1,500 + $1,200 $1,500 = $1,200 taxable income. REF: Archetype 8 | Archetype 10 PTS: 1 5. Allison, age 22, is a full-time law apprentice and is claimed by her parents as a dependent. During 2008, she accustomed $1,300 absorption assets from a coffer accumulation annual and $5,300 from a parttime job. What is Allisons taxable assets for 2008? ANS: $1,150. Allisons accepted acknowledgment is the greater of $5,300 (earned income) + $300 or $900. But the $5,600 is bound to $5,450 (the accepted acknowledgment accustomed a distinct person). Thus, $1,300 + $5,300 $5,450 = $1,150 taxable income. PTS: 1 REF: Archetype 11 6. Heloise, age 74 and a widow, is claimed as a abased by her daughter. For 2008, she had assets as follows: $2,500 absorption on borough bonds; $3,200 Social Security benefits; $3,000 assets from a part-time job; and $2,800 assets on banal investments. What is Heloises taxable assets for 2008? ANS: $1,150. $3,000 (income from job) + $2,800 (dividends) $3,300 (basic accepted acknowledgment is $3,000 + $300) $1,350 (additional accepted acknowledgment for age) = $1,150. The Social Security allowances of $3,200 and the absorption on borough bonds of $2,500 are not taxable. PTS: 1 REF: Table 3-1 | Archetype 9 7. Pablo is affiliated to Elena, who lives with him. Both are U. S. citizens and association of Kansas. Pablo furnishes all of the abutment of his parents, who are citizens of Nicaragua and association of Mexico. He additionally furnishes all of the abutment of Elenas parents, who are citizens and association of Nicaragua. Elena has no gross assets for the year. If Pablo files as a affiliated actuality filing separately, how abounding claimed and annex exemptions can he affirmation on his return? ANS: Four. A claimed absolution for Pablo and Elena and annex exemptions for Pablos parents. Elena can be claimed because she has no income. Presumably she is not actuality claimed as a abased by another. Although Pablos parents are neither U. S. citizens nor residents, they are association of Mexico. Elenas parents accommodated neither the citizenship nor address tests. PTS: 1 REF: p. 3-10 | p. 3-17 3-30 2009 Anniversary Edition/Test Coffer 8. Homer (age 68) and his wife Jean (age 70) book a collective return. They accouter all of the abutment of Luther (Homers 90-year old father), who lives with them. For 2008, they accustomed $6,000 of absorption assets on burghal of Chicago bonds and absorption assets on accumulated bonds of $48,000. Compute Homer and Jeans taxable assets for 2008. ANS: $24,500. Their gross assets is $48,000 back the $6,000 absorption on borough bonds is an exclusion. They are advantaged to a basal accepted acknowledgment of $10,900 and added accepted deductions of $1,050 anniversary for actuality age 65 or older. They can affirmation a annex absolution of $3,500 for Luther and two claimed exemptions for themselves. Thus, $48,000 $10,900 $2,100 (2 $1,050) $10,500 (3 $3,500) = $24,500. PTS: 1 REF: p. 3-10 | p. 3-13 | Exhibit 3-1 | Table 3-1 | Table 3-2 9. Ellen, age 39 and single, furnishes added than 50% of the abutment of her parents, who do not alive with her. Ellen practices as a self-employed autogenous decorator and has gross assets in 2008 of $120,000. Her deductions are as follows: $30,000 business and $7,900 itemized. a. b. What is Ellens taxable assets for 2008? Can Ellen authorize for arch of domiciliary filing status? Explain. ANS: a. $71,500. $120,000 (gross income) - $30,000 (business deductions for AGI) = $90,000 (AGI) $8,000 (standard deduction) $3,500 (personal exemption) $7,000 (dependency exemptions for parents) = $71,500 taxable income. The acknowledgment presumes that the parents accommodated the alternative annex absolution tests (e. g. , gross income) besides support. b. Ellen can authorize for arch of domiciliary filing cachet if she furnishes added than bisected of the bulk of advancement her parents household. Also, at atomic one of Ellens parents charge authorize as her abased (see allotment a. above). REF: p. 3-5 | p. 3-10 | p. 3-13 | Table 3-1 | Archetype 42 PTS: 1 10. Ashley earns a bacon of $35,000, has basal assets of $4,000, and absorption assets of $3,000 in 2008. Her bedmate died in 2007. Ashley has a abased son, Tyrone, who is age 8. Her itemized deductions are $8,000. a. b. Calculate Ashleys taxable assets for 2008. What is her filing status? $35,000 4,000 3,000 $42,000 (10,900) (7,000) $24,100 ANS: a. Bacon Basal assets Absorption AGI Less: Accepted acknowledgment Less: Claimed absolution and annex acknowledgment ($3,500 2) Taxable assets b. Ashley satisfies the requirements for a actual spouse. PTS: 1 REF: p. 3-10 | p. 3-30 | Table 3-1 | Figure 3-1 11. During the year, Keith has the afterward transactions: Tax Determination; Claimed and Annex Exemptions An Overivew of Acreage Affairs Blow from the auction of a business computer Blow from the auction of a claimed use auto Abiding blow from the auction of acreage captivated for advance Concise accretion from the auction of a banal advance How are these affairs handled for assets tax purposes? 3-31 $3,500 1,500 5,000 1,000 ANS: $3,500 accustomed blow and $3,000 basal blow deduction. The $1,000 bare basal blow can be agitated over to the abutting year. The $1,500 blow from the auction of a claimed use auto is not allowed. PTS: 1 REF: Archetype 44 | Archetype 49 12. During 2008, Dena has the afterward assets and losses: LTCG LTCL STCG STCL a. b. How abundant is Denas tax accountability if she is in the 15% tax bracket? If her tax bracket is 33% (not 15%)? $4,000 1,000 500 3,000 ANS: a. $0. Afterwards the antecedent applique process, there is a LTCG of $3,000, and a STCL of $2,500. The $2,500 of STCL is activated to the LTCG of $3,000. The final aftereffect is a net LTCG of $500 burdened at 0% for a tax accountability of $0. b. $75. See allotment a. for the applique process. Now the $500 is burdened at 15% for a tax accountability of $75. REF: Archetype 46 | Archetype 47 PTS: 1 13. During 2008, Marlo had the afterward basal assets and losses: Accretion from the auction of bread accumulating (held three years) Accretion from the auction of acreage captivated as an advance for six years Accretion from the auction of banal captivated as an advance (held for 10 months) a. b. How abundant is Marlos tax accountability if he is in the 15% tax bracket? If his tax bracket is 33% (not 15%)? $5,000 4,000 1,000 ANS: a. $1,100. Accretion of $5,000 on the auction of the bread accumulating is burdened at 15% (lesser of 28% or 15%). The aforementioned is accurate for the concise accretion of $1,000. The accretion of $4,000 on the auction of the acreage is burdened at 0%. Thus, (15% $6,000) + (0% $4,000) = $900. b. $2,330. (33% $1,000) + (28% $5,000) + (15% $4,000) = $2,330. PTS: 1 REF: p. 3-33 | Archetype 46 | Archetype 47 14. During 2008, Blaine has bacon assets of $100,000 and the afterward basal transactions: 3-32 2009 Anniversary Edition/Test Coffer LTCG LTCL STCL $10,000 (14,000) (3,000) How are these affairs handled for assets tax purposes in 2008 and, if applicable, in approaching years? ANS: First, applique the abiding affairs yields a net abiding basal blow of $4,000 [$10,000 (gain) $14,000 (loss)]. Second, administer the $3,000 concise basal blow adjoin accustomed income. Third, backpack the bare $4,000 net abiding basal blow over to 2009. PTS: 1 ESSAY 1. Mr. Lee is a aborigine and aborigine of Hong Kong, while Mr. Anderson is a aborigine and aborigine of the U. S. In the taxation of income, Hong Kong uses a territorial approach, while the U. S. follows the all-around system. In acceding of effect, explain what this agency to Mr. Lee and Mr. Anderson. ANS: Mr. Lee is burdened alone on the assets he receives from Hong Kong, while Mr. Anderson is burdened on his all-around income. Beneath the U. S. approach, a aborigine or aborigine is burdened on a accepted basis. Back the U. S. arrangement could advance to the aforementioned assets actuality burdened twice, assorted abatement accoutrement are apprenticed (e. g. , adopted tax credit). PTS: 1 REF: All-around Tax Issues on p. 3-5 REF: Archetype 49 2. In acceptable the abutment analysis and the gross assets analysis for claiming a annex exemption, a scholarship accustomed by the actuality actuality claimed is handled the aforementioned way for anniversary test. Do you accede or disagree with this statement? Why? ANS: Disagree. For purposes of the abutment test, all of the scholarship is disregarded. For purposes of the gross assets test, alone the taxable allotment is advised (i. e. , the nontaxable allotment is disregarded). PTS: 1 REF: p. 3-12 | p. 3-14 Tax Determination; Claimed and Annex Exemptions An Overivew of Acreage Affairs 3-33 3. In adjustment to affirmation a annex absolution for alternative than a condoning child, a aborigine charge accommodated the abutment test. Generally, this is done by capacity added than 50% of a audience support. What exceptions exist, if any, area the abutment furnished charge not be added than 50%? ANS: One barring involves the assorted abutment agreement. Here, ancestors associates collectively accouter added than 50% of the support, but no one actuality does so. For those able individuals who accord added than 10%, the accumulation can baptize which actuality may affirmation the annex exemption. The additional barring involves the afar parents of children. The careful ancestor is advantaged to the annex exemptions for the children. If this ancestor agrees not to affirmation the exemption(s), again the noncustodial ancestor may do so. PTS: 1 REF: p. 3-15 | p. 3-16 4. In applying the gross assets analysis in the case of audience that are married, could the appliance of association acreage laws accept any effect? Explain. ANS: Best often, the appliance of association acreage laws will appulse on the annex cachet of the apron of a condoning child. Suppose, for example, Roger maintains a domiciliary that includes his 18-year-old daughter, Alice, and her husband, Craig. Assume added that Alice earns $8,000 from a part-time job while Craig has no income. In a accepted law state, Craig meets the gross assets analysis (i. e. , $0) while Alices gross income, as a condoning child, is immaterial. In a association acreage state, however, Craig now violates the gross assets analysis with $4,000 (50% $8,000) of income, while Alice charcoal immune. PTS: 1 REF: p. 3-36 5. In affair the belief of a condoning adolescent for annex absolution purposes, back if ever, ability the childs assets become relevant? ANS: The bulk of assets becoming by the condoning adolescent commonly is of no consequence. If, however, such assets is acclimated to accomplish the adolescent self-supporting, again he or she can no best be a condoning child. Such adolescent additionally would not be a condoning about due to the gross assets and abutment tests. PTS: 1 REF: p. 3-12 3-34 2009 Annual

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