tax exam final 2

Topics: Taxation in the United States, Tax, Income tax in the United States Pages: 118 (12956 words) Published: April 17, 2015
CHAPTER 4
David and Lilly Fernandez have determined their tax liability on their joint tax return to be $1,740. They have made prepayments of $1,100 and also have a child tax credit of $1,000.   
What is the amount of their tax refund or taxes due?
  
 
(1)Total tax$1,740
(2)Child tax credit1,000
(3)Prepayments1,100
Tax refund $(360)
 
Explanation:
David and Lilly will receive a tax refund of $360 calculated as follows:  
Tax refund = $1,740 − $1,100 − $1,000 = −$360

Prepayments are fully refundable when payments exceed the taxes after credits because the refundable amount is essentially an overpayment of taxes.

2.
Jasper and Crewella Dahvill were married in year 0. They filed joint tax returns in years 1 and 2. In year 3, their relationship was strained and Jasper insisted on filing a separate tax return. In year 4, the couple divorced. Both Jasper and Crewella filed single tax returns in year 4. In year 5, the IRS audited the couple’s joint year 2 tax return and each spouse’s separate year 3 tax returns. The IRS determined that the year 2 joint return and Crewella’s separate year 3 tax return understated Crewella’s self-employment income causing the joint return year 2 tax liability to be understated by $9,000 and Crewella’s year 3 separate return tax liability to be understated by $6,950. The IRS also assessed penalties and interest on both of these tax returns. Try as it might, the IRS has not been able to locate Crewella, but they have been able to find Jasper. (Leave no cells blank - be certain to enter "0" wherever required.)

a.
What amount of tax can the IRS require Jasper to pay for the Dahvill’s year 2 joint return?  
 
 

b.
What amount of tax can the IRS require Jasper to pay for Crewella’s year 3 separate tax return?  
 
 

 
Explanation:
a.

Because Jasper is jointly and severally liable for the year 2 return, he is responsible to pay the entire $9,000.

b.

Because they filed separately in year 3, Jasper is not responsible for any of the $6,950. $0

 
#3  
In each of the following independent situations, determine the taxpayer’s filing status and the number of personal and dependency exemptions the taxpayer is allowed to claim.

 
a.
Frank is single and supports his 17-year-old brother, Bill. Bill earned $3,000 and did not live with Frank.  
  
 
Single with two exemptions. 

 
b.
Geneva and her spouse reside with their son, Steve, who is a 20-year-old undergraduate student at State University. Steve earned $13,100 at a part-time summer job, but he deposited this money in a savings account for graduate school. Geneva paid all of the $12,000 cost of supporting Steve.  

  
 
Married filing jointly with three exemptions. 

 
c.
Hamish’s spouse died last year, and Hamish has not remarried. Hamish supports his father Reggie, age 78, who lives in a nursing home and had interest income this year of $2,500.  
  
 
Head of household with two exemptions. 

 
d.
Irene is married but has not seen her spouse since February. She supports her spouse's 18-year-old child Dolores, who lives with Irene. Dolores earned $4,500 this year.  
  
 
Head of household with two exemptions. 

 
e.
Assume the same facts as in part d. Also assume that Craig is Irene’s husband. Craig supports his 12-year-old son Ethan, who lives with Craig. Ethan did not earn any income. What is Craig's filing status?  

 
 
Head of household with two exemptions. 

 

 
 
Explanation:
a.

Single with two exemptions; one personal and one dependency exemption for Bill.  
Frank will file as single, not head of household. Bill is not a qualifying person for purposes of the head of household test because Bill did not live as member of Frank’s household for more than half the year.  

Frank can claim an exemption for Bill because Bill qualifies as Frank’s qualifying relative as follows:  
Test
Bill
 
  Relationship
Yes, Bill is taxpayer’s brother.
 
  Age
Not...
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