Taxation in the United States and Income Tax Return

Topics: Taxation in the United States, Taxation, Tax Pages: 26 (4003 words) Published: November 2, 2013
Solutions for Questions and Problems – Chapter 1 25
SOLUTIONS FOR
QUESTIONS AND PROBLEMS
26 Chapter 1 – The Individual Income Tax Return
Solutions for Questions and Problems – Chapter 1 27
CHAPTER 1
THE INDIVIDUAL INCOME TAX RETURN
Group 1 - Multiple Choice Questions
1. D (LO 1.1) 7. C (LO 1.5) 15. A (LO 1.8)
2. D (LO 1.2) 8. E (LO 1.6) 16. E $25,000 = $275,000 –
3. A (LO 1.3) 9. C (LO 1.6) ($285,000 – $35,000) (LO 1.8)
4. C (LO 1.3) 10. C (LO 1.6) 17. C $45,000 = $48,000 – $3,000 5. B $98,000 – $19,000 – $3,800 11. B (LO 1.6) (LO 1.8)
= $75,200 (LO 1.3) 12. B (LO 1.7) 18. D (LO 1.10)
6. C $5,950 + $3,800 = $9,750 13. B (LO 1.7)
(LO 1.4) 14. E (LO 1.8)
Group 2 - Problems
1. a. Raising revenue to operate the government.
b. Furthering economic goals such as reducing unemployment.
c. Furthering social goals such as encouraging contributions to charities. (LO 1.1) 2. a. $36,500 = $41,000 + 500 – 5,000.
b. $11,900, the greater of itemized deductions or the standard deduction of $11,900. c. $17,000 = $36,500 – 11,900 – (2 x $3,800). (LO 1.3)
3. a. $23,000.
b. $5,950, the greater of total itemized deductions or the standard deduction amount. c. $13,250 = $23,000 – 5,950 – 3,800. (LO 1.3)
4. a. $52,700 = $54,000 + 1,700 – 3,000 ($7,000 capital loss limited to $3,000) b. $5,950
c. $3,800
d. $42,950 = $52,700 – 5,950 – 3,800 (LO 1.3)
5. Gross income
– Deductions for adjusted gross income
= Adjusted gross income
– Greater of itemized deductions or standard deduction
– Exemptions
= Taxable income (LO 1.3)
6. a. $48,079 = $46,479 + 3,500 – 1,900.
b. $11,900, the greater of itemized deductions or the standard deduction of $11,900. c. $28,579 = $48,079 – 11,900 – (2 x 3,800).
d. $3,416 (Tax Table) (LO 1.3 and 1.5)
7. Adjusted gross income $17,400
Less: Itemized deductions –2,250
One exemption –3,800
Taxable income $11,350
Ulysses’ tax liability from the Tax Table is $1,271. (LO 1.3 and 1.5) 27
28 Chapter 1 – The Individual Income Tax Return
8. Adjusted gross income ($13,000 + 1,400) $14,400
Less: Standard deduction –5,950
Exemption –3,800
Taxable income $4,650
(LO 1.3 and 1.5)
(Note: See Chapter 6 for the tax computation for dependent college students under age 24.) 9. a. $35,250 = $45,000 – 5,950 – 3,800.
b. Taxpayers with incomes up to $100,000 must use the tax tables. c. $4,856. (LO 1.3 and 1.5)
10. a. $68,000 = $50,000 + 10,000 + 5,000 + 3,000.
b. $64,800 = $68,000 – 3,200.
c. $12,000.
d. 5. Two personal and three dependency exemptions.
e. $33,800 = $64,800 – 12,000 – 19,000 (5 x 3,800).
f. $4,204 (LO 1.3, 1.5, 1.6 and 1.7)
11. a. $87,000 = $83,000 + 4,000.
b. $7,600 = 2 x $3,800.
c. $67,400 = 87,000 – 12,000 – 7,600. (LO 1.3, 1.5, 1.6 and 1.7) 12. Taxable income is: $30,250 = $40,000 – 5,950 – 3,800. Tax liability: $4,106. (LO 1.3, 1.5, 1.6, 1.7) 13. Yes. Since Nicoula owes social security taxes on the unreported tips, she must file an income tax return. (LO 1.4)

14. a. No. Income is less than the sum of the $3,800 exemption plus the $5,950 standard deduction. b. Yes. Gross income is more than the larger of $950 or $1,850 (earned income of $1,550 plus $300). c. No. Their income is under $20,650, the total of personal exemptions and the standard deduction. d. No. Gross income is less than $19,500, the total of personal exemptions and the standard deduction. e. Yes. His earnings exceeded the $400 limit for self-employed persons. (LO 1.4) (Note: All answers can be found in the figures in LO 1.4.)

15. Allen $2,719.
Boyd $3,244.
Caldwell $4,496.
Dell $3,501.
Evans $7,286. (LO 1.5)
16. a. D
b. D
c. A
d. A
e. B or C (LO 1.5)
17. a. Because their income exceeds $100,000, the tax rate schedules must be used. b. $17,560 = $9,735 + 7,825 (25%(102,000 – 70,700)). (LO 1.5) 18. They may file either as married filing joint or married filing separately. They must file married, since they were married by year-end. (LO 1.5)

19. Head of household. Maggie’s parents meet the tests to...
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