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Exam 3: Computing the Tax

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Question 1

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Taylor had the following transactions for 2012: What is Taylor's AGI for 2012?

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$76,000.$85,000 (salary) + $3,000 (raffl...

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Question 2

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Mr.Lee is a citizen and resident of Hong Kong, while Mr.Anderson is a citizen and resident of the U.S.In the taxation of income, Hong Kong uses a territorial approach, while the U.S.follows the global system.In terms of effect, explain what this means to Mr.Lee and Mr.Anderson.

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Mr.Lee is taxed only on the income he receives from Hong Kong, while Mr.Anderson is taxed on his global income.Under the U.S.approach, a citizen or resident is taxed on a worldwide basis.Since the U.S.system could lead to the same income being taxed twice, various relief provisions are necessitated (e.g., foreign tax credit).

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Jason and Peg are married and file a joint return.Both are over 65 years of age and Jason is blind.Their standard deduction for 2012 is $15,350 ($11,900 + $1,150 + $1,150 + $1,150).

Contrast the tax consequences resulting from the following filing status situations:

In which, if any, of the following situations will the kiddie tax not apply?

During 2012, Marvin had the following transactions: Marvin's AGI is:

The major advantage of being classified as an abandoned spouse is that the taxpayer is treated for tax purposes as being single and not married.This means that an abandoned spouse can use the more favorable tax rates available to single persons than those available to married persons filing separately.Comment on the accuracy of this conclusion.

In terms of the tax formula applicable to individual taxpayers, which, if any, of the following statements is correct?

During the year, Kim sold the following assets: business auto for a $1,000 loss, stock investment for a $1,000 loss, and pleasure yacht for a $1,000 loss.Presuming adequate income, how much of these losses may Kim claim?

Ethan had the following transactions during 2012: What is Ethan's AGI for 2012?

When the kiddie tax applies and the parents are divorced, the applicable parent (for determining the parental tax) is the one who has custody.

Howard, age 82, dies on January 2, 2012.On Howard's final income tax return, the full amount of the basic and additional standard deductions will be allowed even though Howard lived for only 2 days during the year.

Kyle, whose wife died in December 2009, filed a joint tax return for 2009.He did not remarry, but has continued to maintain his home in which his two dependent children live.What is Kyle's filing status as to 2012?

Keith, age 17 and single, earns $3,000 during 2012.Keith's parents cannot claim him as a dependent even if he does not live with them.

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

When can a taxpayer not use Form 1040EZ? Form 1040A?

During 2012, Jackson had the following capital gains and losses:

For the qualifying relative category (for dependency exemption purposes) :

Ellen, age 39 and single, furnishes more than 50% of the support of her parents, who do not live with her.Ellen practices as a self-employed interior decorator and has gross income in 2012 of $120,000.Her deductions are as follows: $30,000 business and $8,100 itemized.

Tom is single and for 2012 has AGI of $50,000. He is age 70 and has no dependents. For 2012, he has itemized deductions from AGI of $7,000.Determine Tom's taxable income for 2012.