Research Problems
Research Problem 1. John and Janet Baker are married and maintain a household in which the following persons live: Calvin and Florence Carter and Darin, Andrea, and
Morgan Baker.
• Calvin and Florence are Janet’s parents, who are retired. During the year, they receive $19,000 in nontaxable funds (e.g., disability income, interest on municipal bonds, and Social Security benefits). Of this amount, $8,000 is spent equally between them for clothing, transportation, and recreation (e.g., gym fees and travel), and the balance of $11,000 is invested in tax-exempt securities. Janet paid $1,000 for her mother’s dental work, and she paid the $1,200 premium on an insurance policy that her father owned on his own life. Calvin also incurred medical expenses, but he insisted on paying for them with his own funds.
• Darin is the Bakers’ 18-year-old son who is not a student but operates a poolcleaning service on a part-time basis. During the year, he earns $14,000 from the business, which he places in a savings account for later college expenses.
• Andrea is the Bakers’ 19-year-old daughter who does not work or go to school.
Tired of the inconvenience of borrowing and sharing the family car, she purchased a Camaro for $21,000 during the year. Andrea used funds from a savings account that she had established several years ago with an inheritance from her paternal grandfather.
• Morgan is the Bakers’ 23-year-old daughter. To attend graduate school at a local university, she applied for and obtained a student loan of $20,000. She uses the full amount of the loan to pay her college tuition.
The Bakers’ fair rental value of their residence, including utilities, is $14,000, while their total food expense for the household is $10,500.
a. How many dependency exemptions are the Bakers entitled to claim for the year?
Explain your answer.
b. From an income tax planning standpoint, how might the Bakers have improved the tax result?
Research Problem 2. Kathy and Brett Ouray married in 1998. They began to experience marital difficulties in 2013 and, in the current year, although they are not legally separated, the couple considers themselves completely estranged. They have contemplated getting a divorce. However, because of financial concerns and because they both want to remain involved in the lives of their three sons, they have not yet filed for divorce. In addition, the Ourays’ financial difficulties have meant that Kathy and Brett cannot afford to live in separate residences. So Kathy, Brett, and their three sons all reside in a single-family home in Chicago.
Although Brett earns significantly more annual income than does Kathy, both parties contribute financially to maintaining their home and supporting their teenage sons. In one of their few, brief conversations this year, they determined that Brett had contributed far more consideration than had Kathy to the maintenance of their home and the support of their sons.
Thus, Brett has decided that for the current tax year, he and Kathy will file separate
Federal income tax returns and he will claim head-of-household filing status.
Even though they live under the same roof, Brett believes that he and Kathy should “maintain separate households.” Therefore, Brett believes that he is eligible for headof- household filing status.
Advise Brett on which filing status is most appropriate for him in the current year in a letter to him at 16 Lahinch, Chicago, IL 60608.
Research Problem 3. When taxpayers pay Federal income taxes by means of a credit or debit card, they are charged “convenience fees” by the issuer of the card. How are these fees determined? Are these fees themselves deductible? Explain. Summarize your findings in a memo for the tax research file.
Research Problem 4. Send to your instructor a table showing the amounts of the standard deduction and personal exemption for a single individual as they have changed over the last 10 years.
Research Problem 5. Prepare a graph for your school’s Accounting Club of the Federal income tax rates that apply at taxable income levels up to $200,000 for each filing status.
Research Problem 6. Prepare a pie chart for the last tax year with complete data for the Federal Forms 1040. Indicate how many of each type of tax return was filed, as a percentage of the total. Send the graph to your instructor.
a. By form type (e.g., Form 1040 or 1040EZ).
b. By filing status (e.g., single or surviving spouse).
Research Problem 7. Prepare for a talk with your school’s Accounting Club by crafting no more than four PowerPoint slides. The slides should trace, in five-year time periods starting with 1990, the number of Forms 1040 filed for the tax year using each filing status (e.g., single or head of household). Using the Slide Notes feature, add a few comments about what you found. Send the slide deck to your instructor.
Internet
Activity
Use the tax resources of the Internet to address the following questions. Do not restrict your search to the Web, but include a review of newsgroups and general reference materials, practitioner sites and resources, primary sources of the tax law, chat rooms and discussion groups, and other opportunities.
Roger CPA Review Questions
1. For “qualifying widow(er)” filing status, which of the following requirements must be met?
I. The surviving spouse does not remarry before the end of the current year
II. The surviving spouse was eligible to file a joint tax return in the year of the spouse’s death
III. The surviving spouse maintains the cost of the principal residence for six months
a. I, II, and III
b. I and II, but not III
c. I and III, but not II
d. I only
2. Which of the below prevents a married couple from filing a joint tax return?
I. The spouses have different accounting methods
II. The spouses have different tax years, provided that both spouses are alive at the end of the year
III. One spouse was a nonresident alien for three months during the year, and no proper election was made
a. I and II only
b. II and III only
c. I and III only
d. II only
3. Parker and his wife Marie would have been filing a joint tax return for 2016; however,
Marie died in October 2016. Parker has not remarried and continues to maintain a home for himself and his two children from 2016 through 2019. Parker’s filing statuses for those tax years are as follows.
2016 2017 2018 2019
a. Qualifying widower Married filing joint return
Qualifying widower Head of household
b. Married filing joint return
Married filing joint return
Head of household Qualifying widower
c. Married filing joint return
Qualifying widower Qualifying widower Head of household
d. Qualifying widower Qualifying widower Head of household Qualifying widower
4. Which of the following items are included in determining the total support of a dependent?
I. Medical expenditures paid on behalf of the dependent
II. Life insurance premiums paid on behalf of the dependent
III. Fair rental value of dependent’s lodging
a. All of the above
b. I and II only
c. I and III only
d. I only
5. Kyle and Elena Smith contributed to the support of their two children, Alexandra and Matthew, and Elena’s divorced father Nick. This year, Alexandra, age 22 and a full-time college student, earned $1,700 from a part-time job. Matthew, age 27 and a full-time graduate student, earned $23,000 from his job as a teaching assistant. Nick received $12,000 in capital gains income and $7,000 in nontaxable Social Security benefits. Alexandra, Matthew, and Nick are U.S. citizens; more than half of their support was provided by Kyle and Elena. How many exemptions can Kyle and Elena claim on their joint income tax return?
a. 2
b. 3
c. 4
d. 5