Problems
28. LO.1 Compute 2016 taxable income in each of the following independent situations.
a. Drew and Meg, ages 40 and 41 respectively, are married and file a joint return.
In addition to four dependent children, they have AGI of $65,000 and itemized deductions of $15,000.
b. Sybil, age 40, is single and supports her dependent parents, who live with her.
Sybil also supports her grandfather, who lives in a nursing home. She has AGI of $80,000 and itemized deductions of $8,000.
c. Scott, age 49, is a surviving spouse. His household includes two unmarried stepsons who qualify as his dependents. He has AGI of $75,000 and itemized deductions of $10,100.
d. Amelia, age 33, is an abandoned spouse and maintains a household for her three dependent children. She has AGI of $58,000 and itemized deductions of $9,500.
e. Dale, age 42, is divorced but maintains the home in which he and his daughter,
Jill, live. Jill is single and qualifies as Dale’s dependent. Dale has AGI of $64,000 and itemized deductions of $9,900.
Note: Problems 29 and 30 can be solved by referring to Concept Summary 3.1,
Exhibits 3.1 through 3.5, and the discussion under Deductions for Adjusted Gross
Income in this chapter.
29. LO.1, 8 Compute Emily’s 2016 taxable income on the basis of the following information.
Her filing status is single.
Salary $85,000
Interest income from bonds issued by Xerox 1,100
Alimony payments received 6,000
Contribution to traditional IRA 5,500
Gift from parents 25,000
Capital gain from stock investment, held for 7 months 2,000
Amount lost in football office betting pool 500
Number of potential dependents (two cousins, who live in Canada) ?
Age 40
30. LO.1 Compute Aiden’s 2016 taxable income on the basis of the following information. Aiden is married but has not seen or heard from his wife for over three years.
Salary $ 80,000
Interest on bonds issued by City of Boston 3,000
Interest on CD issued by Wells Fargo Bank 2,000
Cash dividend received on Chevron common stock 2,200
Life insurance proceeds paid due to the death of Aunt Margie (Aiden was the designated beneficiary of the policy) 200,000
Inheritance received on death of Aunt Margie 100,000
Jackson (a cousin) repaid a loan Aiden made to him in 2010 (no interest was provided for) 5,000
Itemized deductions (state income tax, property taxes on residence, interest on home mortgage, charitable contributions) 9,700
Number of dependents (children, ages 17 and 18; mother-in-law, age 60) 3
Age 43
31. LO.2 Determine the amount of the 2016 standard deduction allowed in the following independent situations. In each case, assume that the taxpayer is claimed as another person’s dependent.
a. Curtis, age 18, has income as follows: $700 interest from a certificate of deposit and $6,100 from repairing cars.
b. Mattie, age 18, has income as follows: $600 cash dividends from a stock investment and $4,700 from handling a paper route.
c. Mel, age 16, has income as follows: $675 interest on a bank savings account and $800 for painting a neighbor’s fence.
d. Lucy, age 15, has income as follows: $400 cash dividends from a stock investment and $500 from grooming pets.
e. Sarah, age 67 and a widow, has income as follows: $500 from a bank savings account and $3,200 from babysitting.
32. LO.4 Using the legend provided below, classify each statement as to the taxpayer for dependency exemption purposes.
Legend
QC ? Could be a qualifying child
QR ? Could be a qualifying relative
B ? Could satisfy the definition of both a qualifying child and a qualifying relative
N ? Could not satisfy the definition of either a qualifying child or a qualifying relative
a. Taxpayer’s son has gross income of $7,000.
b. Taxpayer’s niece has gross income of $3,000.
c. Taxpayer’s uncle lives with him.
d. Taxpayer’s daughter is age 25 and disabled.
e. Taxpayer’s daughter is age 18 but does not live with him. Her gross income is $8,000.
f. Taxpayer’s cousin does not live with her.
g. Taxpayer’s brother does not live with her.
h. Taxpayer’s sister lives with him. She is age 17 and has dropped out of school.
i. Taxpayer’s older nephew is age 23 and a full-time student.
j. Taxpayer’s grandson lives with her. His gross income is $7,000.
33. LO.3, 4 Determine the number of personal and dependency exemptions in each of the following independent situations.
a. Leo and Amanda (ages 48 and 46, respectively) are married and furnish more than 50% of the support of their two children, Elton (age 18) and Trista (age 24). During the year, Elton earns $4,500 providing transportation for elderly persons with disabilities, and Trista receives a $5,000 scholarship for tuition at the law school she attends.
b. Audrey (age 45) is divorced this year. She maintains a household in which she, her ex-husband, Clint, and his mother, Olive, live. Audrey furnishes more than
50% of the household’s support. Olive is age 91 and blind.
c. Crystal, age 45, furnishes more than 50% of the support of her married son,
Andy (age 18), and his wife, Paige (age 19), who live with her. During the year,
Andy earned $8,200 from a part-time job. All parties live in Iowa (a common law state).
d. Assume the same facts as in part (c), except that all parties live in Washington (a community property state).
34. LO.3, 4 Determine the number of personal and dependency exemptions in each of the following independent situations. No tax treaty provisions apply.
a. Reginald, a U.S. citizen and resident, contributes 100% of the support of his parents, who are citizens of Canada and live there.
b. Pablo, a U.S. citizen and resident, contributes 100% of the support of his parents, who are citizens of Panama. Pablo’s father is a resident of Panama, and his mother is a legal resident of the United States.
c. Gretchen, a U.S. citizen and resident, contributes 100% of the support of her parents, who are U.S. citizens but are residents of Germany.
35. LO.3, 4 Determine how many personal and dependency exemptions are available in each of the following independent situations. Specify whether any such exemptions would come under the qualifying child or the qualifying relative category.
a. Andy maintains a household that includes a cousin (age 12), a niece (age
18), and a son (age 26). All are full-time students. Andy furnishes all of their support.
b. Jackie provides all of the support of a family friend’s son (age 20) who lives with her. She also furnishes most of the support of her stepmother, who does not live with her.
c. Raul, a U.S. citizen, lives in Costa Rica. Raul’s household includes his friend
Helena, who is age 19 and a citizen of Costa Rica. Raul provides all of
Helena’s support.
d. Karen maintains a household that includes her ex-husband, her mother-inlaw, and her brother-in-law (age 23 and not a full-time student). Karen provides more than half of all of their support. Karen is single and was divorced last year.
36. LO.4 Jenny, age 14, lives in a household with her father, uncle, and grandmother.
The household is maintained by the uncle. The parties, all of whom file their own Federal income tax returns, report AGI as follows: father ($30,000), uncle ($50,000), and grandmother ($40,000).
a. Who is eligible to claim Jenny as a dependent on a Federal income tax return?
b. Which of Jenny’s relatives takes precedence in claiming the exemption?
Explain.
37. LO.3, 4 Sam and Elizabeth Jefferson file a joint return. They have three children, all of whom qualify as dependents. If the Jeffersons report 2016 AGI of $333,400, what is their allowable deduction for personal and dependency exemptions?
38. LO.4, 9 Wesley and Myrtle (ages 90 and 88, respectively) live in an assisted care facility and for the last two years received their support from the following sources.
Percentage of Support
Social Security benefits 16%
Son 20
Niece 29
Cousin 12
Brother 11
Family friend (not related) 12
a. Who is eligible to claim the Federal income tax dependency exemptions under a multiple support agreement?
b. Must Wesley and Myrtle be claimed as dependents by the same person(s) for both tax years? Explain.
c. Who, if anyone, can claim an itemized deduction for paying the medical expenses of Wesley and Myrtle?
39. LO.5 In each of the following independent situations, determine Winston’s filing status. Winston is not married.
a. Winston lives alone, but he maintains a household in which his parents live.
The mother qualifies as Winston’s dependent, but the father does not.
b. Winston lives alone, but he maintains a household in which his married daughter,
Karin, lives. Both Karin and her husband (Winston’s son-in-law) qualify as
Winston’s dependents.
c. Winston maintains a household in which he and a family friend, Ward, live.
Ward qualifies as Winston’s dependent.
d. Winston maintains a household in which he and his mother-in-law live. Winston’s wife died last year.
e. Same as part (d), except that Winston’s wife disappeared (i.e., she did not die) two years ago.
40. LO.4, 5 Christopher died in 2014 and is survived by his wife, Chloe, and their 18- year-old son, Dylan. Chloe is the executor of Christopher’s estate and maintains the household in which she and Dylan live. All of their support is furnished by
Chloe. Dylan saves his earnings. Dylan reports the following information.
Year Earnings Student?
2014 $5,000 Yes
2015 7,000 No
2016 6,000 Yes
What is Chloe’s Federal income tax filing status for:
a. 2014?
b. 2015?
c. 2016?
41. LO.3, 4, 5 Nadia died in 2015 and is survived by her husband, Jerold (age 44); her married son, Travis (age 22); and her daughter-in-law, Macy (age 18).
Jerold is the executor of his wife’s estate. He maintains the household where he,
Travis, and Macy live, and Jerold furnished all of their support. During 2015 and
2016, Travis is a full-time student, while Macy earns $7,000 each year from a parttime job. Travis and Macy do not file jointly during either year.
What is Jerold’s Federal income tax filing status for 2015 and 2016 if all parties reside in:
a. Idaho (a community property state)?
b. Kansas (a common law state)?
42. LO.4, 9 Walter and Nancy provide 60% of the support of their daughter Irene (age
18) and son-in-law John (age 22). John is a full-time student at a local university, while Irene holds various part-time jobs from which she earns $11,000.
Walter and Nancy engage you to prepare their tax return for 2016. During a meeting with them in late March 2017, you learn that John and Irene have filed a joint return. What tax advice would you give based on the following assumptions?
a. All parties live in Louisiana (a community property state).
b. All parties live in New Jersey (a common law state).
43. LO.1, 2, 3, 4, 5, 6 Using the Tax Rate Schedules, compute the 2016 tax liability for Charlotte. Charlotte (age 40) is a surviving spouse and provides all of the support of her four minor children, who live with her. Charlotte also maintains the household in which her parents live, and she furnished 60% of their support. Besides interest on City of Miami bonds in the amount of $5,500,
Charlotte’s father received $2,400 from a part-time job. Charlotte earns an $80,000 salary, a short-term capital loss of $2,000, and a cash prize of $4,000 at a church raffle. Charlotte reports itemized deductions of $10,500.
44. LO.1, 2, 3, 4, 5, 6, 8 Use the Tax Rate Schedules to compute Morgan’s 2016 Federal income tax liability. Morgan (age 45) is single and provides more than 50% of the support of Rosalyn (a family friend, age 36), Flo (a niece, age
18), and Jerold (a nephew, age 18). Both Rosalyn and Flo live with Morgan, but Jerold (a citizen of France) lives in Canada. Morgan earns a $95,000 salary, contributes $5,000 to a traditional IRA, and receives sales proceeds of $15,000 for an RV that cost $60,000 and was used only for vacations. She incurs $8,200 in itemized deductions.
45. LO.5 Which of the following individuals are required to file a 2016 Federal income tax return? Should any of these individuals file a return even if filing is not required? Why or why not?
a. Patricia, age 19, is a self-employed single individual with gross income of $5,200 from an unincorporated business. Business expenses amounted to $4,900.
b. Mike is single and is 67 years old. His gross income from wages was $10,800.
c. Ronald is a dependent child under age 19 who received $6,500 in wages from a part-time job.
d. Sam is married and files a joint return with his spouse, Lana. Both Sam and Lana are 67 years old. Their combined gross income was $24,250.
e. Quinn, age 20, is a full-time college student who is claimed as a dependent by his parents. Quinn reports taxable interest and dividends of $2,500.
46. LO.5, 6, 9 Roy and Brandi are engaged and plan to get married. Roy is a full-time student and earns $9,000 from a part-time job. With this income, student loans, savings, and nontaxable scholarships, he is self-supporting. For the year,
Brandi is employed and reports $61,000 in wages. How much Federal income tax, if any, can Brandi save if she and Roy marry in 2016 and file a joint return?
47. LO.1, 3, 6, 7 Taylor, age 18, is claimed as a dependent by her parents. For 2016, she records the following income: $4,000 wages from a summer job, $1,800 interest from a money market account, and $2,000 interest from City of Boston bonds.
a. What is Taylor’s taxable income?
b. What is Taylor’s Federal income tax? Her parents file a joint return and report taxable income of $130,000 (no dividends or capital gains).
48. LO.1, 3, 6, 7 Paige, age 17, is claimed as a dependent on her parents’ 2016 Federal income tax return, on which they report taxable income of $120,000 (no qualified dividends or capital gains). Paige earned $3,900 pet sitting and $4,100 in interest on a savings account. What are Paige’s taxable income and tax liability?
49. LO.1, 3, 6, 7 Terri, age 16, is claimed as a dependent on her parents’ 2016 Federal income tax return. During the year, Terri earned $5,000 in interest income and $3,000 from part-time jobs.
a. What is Terri’s taxable income?
b. How much of Terri’s income is taxed at her own tax rate? At her parents’ rate?
50. LO.6, 8 During the year, Inez recorded the following transactions involving capital assets.
Gain on the sale of unimproved land (held as an investment for 3 years) $ 3,000
Loss on the sale of a camper (purchased 2 years ago and used for family vacations) (5,000)
Gain on the sale of ADM stock (purchased 9 months ago as an investment) 4,000
Gain on the sale of a fishing boat and trailer (acquired 18 months ago at an auction and used for recreational purposes) 1,000
a. If Inez is in the 35% Federal income tax bracket, how much tax results?
b. If Inez is in the 15% bracket?
Jerold is the executor of his wife’s estate. He maintains the household where he,
Travis, and Macy live, and Jerold furnished all of their support. During 2015 and
2016, Travis is a full-time student, while Macy earns $7,000 each year from a parttime job. Travis and Macy do not file jointly during either year.
What is Jerold’s Federal income tax filing status for 2015 and 2016 if all parties reside in:
a. Idaho (a community property state)?
b. Kansas (a common law state)?
42. LO.4, 9 Walter and Nancy provide 60% of the support of their daughter Irene (age
18) and son-in-law John (age 22). John is a full-time student at a local university, while Irene holds various part-time jobs from which she earns $11,000.
Walter and Nancy engage you to prepare their tax return for 2016. During a meeting with them in late March 2017, you learn that John and Irene have filed a joint return. What tax advice would you give based on the following assumptions?
a. All parties live in Louisiana (a community property state).
b. All parties live in New Jersey (a common law state).
43. LO.1, 2, 3, 4, 5, 6 Using the Tax Rate Schedules, compute the 2016 tax liability for Charlotte. Charlotte (age 40) is a surviving spouse and provides all of the support of her four minor children, who live with her. Charlotte also maintains the household in which her parents live, and she furnished 60% of their support. Besides interest on City of Miami bonds in the amount of $5,500,
Charlotte’s father received $2,400 from a part-time job. Charlotte earns an $80,000 salary, a short-term capital loss of $2,000, and a cash prize of $4,000 at a church raffle. Charlotte reports itemized deductions of $10,500.
44. LO.1, 2, 3, 4, 5, 6, 8 Use the Tax Rate Schedules to compute Morgan’s 2016 Federal income tax liability. Morgan (age 45) is single and provides more than 50% of the support of Rosalyn (a family friend, age 36), Flo (a niece, age
18), and Jerold (a nephew, age 18). Both Rosalyn and Flo live with Morgan, but Jerold (a citizen of France) lives in Canada. Morgan earns a $95,000 salary, contributes $5,000 to a traditional IRA, and receives sales proceeds of $15,000 for an RV that cost $60,000 and was used only for vacations. She incurs $8,200 in itemized deductions.
45. LO.5 Which of the following individuals are required to file a 2016 Federal income tax return? Should any of these individuals file a return even if filing is not required? Why or why not?
a. Patricia, age 19, is a self-employed single individual with gross income of $5,200 from an unincorporated business. Business expenses amounted to $4,900.
b. Mike is single and is 67 years old. His gross income from wages was $10,800.
c. Ronald is a dependent child under age 19 who received $6,500 in wages from a part-time job.
d. Sam is married and files a joint return with his spouse, Lana. Both Sam and Lana are 67 years old. Their combined gross income was $24,250.
e. Quinn, age 20, is a full-time college student who is claimed as a dependent by his parents. Quinn reports taxable interest and dividends of $2,500.
46. LO.5, 6, 9 Roy and Brandi are engaged and plan to get married. Roy is a full-time student and earns $9,000 from a part-time job. With this income, student loans, savings, and nontaxable scholarships, he is self-supporting. For the year,
Brandi is employed and reports $61,000 in wages. How much Federal income tax, if any, can Brandi save if she and Roy marry in 2016 and file a joint return?
47. LO.1, 3, 6, 7 Taylor, age 18, is claimed as a dependent by her parents. For 2016, she records the following income: $4,000 wages from a summer job, $1,800 interest from a money market account, and $2,000 interest from City of Boston bonds.
a. What is Taylor’s taxable income?
b. What is Taylor’s Federal income tax? Her parents file a joint return and report taxable income of $130,000 (no dividends or capital gains).
48. LO.1, 3, 6, 7 Paige, age 17, is claimed as a dependent on her parents’ 2016 Federal income tax return, on which they report taxable income of $120,000 (no qualified dividends or capital gains). Paige earned $3,900 pet sitting and $4,100 in interest on a savings account. What are Paige’s taxable income and tax liability?
49. LO.1, 3, 6, 7 Terri, age 16, is claimed as a dependent on her parents’ 2016 Federal income tax return. During the year, Terri earned $5,000 in interest income and $3,000 from part-time jobs.
a. What is Terri’s taxable income?
b. How much of Terri’s income is taxed at her own tax rate? At her parents’ rate?
50. LO.6, 8 During the year, Inez recorded the following transactions involving capital assets.
Gain on the sale of unimproved land (held as an investment for 3 years) $ 3,000
Loss on the sale of a camper (purchased 2 years ago and used for family vacations) (5,000)
Gain on the sale of ADM stock (purchased 9 months ago as an investment) 4,000
Gain on the sale of a fishing boat and trailer (acquired 18 months ago at an auction and used for recreational purposes) 1,000
a. If Inez is in the 35% Federal income tax bracket, how much tax results?
b. If Inez is in the 15% bracket?