Quiz 2: Expanded Tax Formula, Forms 1040a and 1040, and Basic Concepts
Business
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Income tax is the tax paid by individuals, household, and business entities to the government on the earnings that they have. The rules and regulations are supervised by IRS which is a government body. Form 1040 is the expanded and biggest tax form followed by 1040a.AGI is adjusted gross income which is calculated by subtracting the allowed deductions from the gross income. Deductible is the amount which is allowed to be deducted from the income of the individual and is not the part of taxable income.AGI is aggregated gross income. For AGI deductions are those deductions which are permitted to take even when AGI calculations are not done. The three examples of for AGI deductions are as follows: • The expenditures which are related to work, made by teachers. • The expenses made for premium paid for insuring office building.• The expenses made for maintenance of the work premise.
Q 2Q 2
Jose and Dora Hernandez are married filing jointly. They are 50 and 45 years old, respectively. Their address is 32010 Lake Street, Atlanta, Georgia 30300. Additional information about Mr. and Mrs. Hernandez is as follows:
Social security numbers
Jose: 412-34-5670. Dora: 412-34-5671.
Form 1099-INT for Jose and Dora shows this amount:
Box 1 = $300 from City Bank.
Dependent: Daughter, Adela is 5 years old. Her social security number is 412-34-5672.
Jose is a store manager and Dora is a receptionist.
Prepare the tax return for Mr. and Mrs. Hernandez using the appropriate form. They want to contribute to the presidential election campaign.
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Use Form 1040A. Adjusted Gross Income is $77,100; Tax Liability is $7,379; Child tax credit is $1,000; Total Tax net of Credits is $6,379; Refund is $8,231.
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Income tax is the tax paid by individuals, household and business entities to the government on the earnings that they have. The rules and regulations are supervised by IRS which is a government body. Income tax return is basically the form which the taxpayer has to fill and fill information about the details of his earnings and tax paid, if any. Form 1040 is the expanded and biggest tax form followed by 1040A. These forms have several sections which are related to earning, deduction, credits and expenses. Filing status is the category under which the taxpayer qualifies and fills the form related to that category. The income-tax payers could file their income-tax under different status which are dependent on circumstances of the tax payer. The five-filing status are as follows: • Single where an unmarried person files the return and he should also not qualify under category of head of household and widow(er). • Married and filing jointly i. e. married couple is filing return jointly and they can even file jointly even after separation till divorce is not final. • Married and filing separately i. e. married couple is filing their returns separately. Filing as head of the household. When a person wants to qualify for head of household filing status then it is necessary that the person should have certain qualifications as the person should be citizen of country or should be resident in country U for that year. The person should be unmarried. The person should not be widow or widower. The person should maintain a household for more than half year in the country. • Filing with status of widow or widower and has dependent child. If taxpayer has not remarried then he can file under this status till two years from the death of spouse. The person should have satisfied all conditions of filling jointly when spouse was alive.
Q 4Q 4
Marie Lincoln is a head of household. She is 37 years old and her address is 4110 N.E. 13 Street, Miami, Florida 33000. Additional information about Ms. Lincoln is as follows:
Social security number: 412-34-5670.
W-2 for Marie shows these amounts:
Box 1 = $43,600.00
Box 2 = $ 6,540.00
Box 3 = $43,600.00
Box 4 = $ 2,703.20.
Box 5 = $43,600.00
Box 6 = $ 632.20.
Form 1099-INT for Marie shows this amount:
Box 1 = $500 from A D Bank.
Dependent: Son, Steven is 10 years old. His Social Security number is 412-34-5672.
Marie is an administrative assistant.
Prepare the tax return for Ms. Lincoln using the appropriate form. She wants to contribute to the presidential election campaign.
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Q 6Q 6
Margaret O'Hara has been divorced for about two years. She is 28 years old and her address is 979 S. E. 32 Street, Jacksonville, Florida 33111. Additional information about Ms. O'Hara is as follows:
Social security number: 412-34-5670.
Alimony received = $24,000.00
W-2 for Margaret shows these amounts:
Box 1 = $38,000.00
Box 2 = $ 9,500.00
Box 3 = $38,000.00
Box 4 = $ 2,356.00
Box 5 = $38,000.00
Box 6 = $ 551.00
Margaret is a research assistant.
Prepare the tax return for Ms. O'Hara using the appropriate form. She does not want to contribute to the presidential election campaign.
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Q 7Q 7
George and Debbie were legally married on December 31, 2010. Can they file their 2010 income tax return using the status of married filing jointly? Why or why not? What other filing status choices do they have, if any?
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Q 9Q 9
What are the three general tests that a qualifying person must meet to be a dependent of the taxpayer?
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Q 11Q 11
What age must a child be at the end of the year to meet the age test under the qualifying child rules?
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Q 14Q 14
Mimi is 22 years old and is a full-time student at Ocean County Community College. She lives with her parents, who provide all of her support. During the summer, she put her Web design skills to work and earned $4,000. Can Mimi's parents claim her as a dependent on their joint tax return? Why or why not? Assume that all five tests under qualifying child are met.
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Q 16Q 16
Under what circumstances must a taxpayer use a tax rate schedule rather than using a tax table?
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Q 18Q 18
Prepare a table of the possible IRS penalties listed in the text and give a brief summary of the purpose of each penalty.
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Q 19Q 19
A single taxpayer is 27 years old and has wages of $15,000 and interest income of $400. Which is the simplest tax form this person can file? a. 1040.
B) 1040EZ.
C) 1040A.
D) 1040Z.
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Multiple Choice
Q 20Q 20
Payment of alimony by the taxpayer is a for AGI deduction. Which form can the taxpayer use to claim this benefit? a. 1040.
B) 1040A.
C) Either 1040 or 1040A.
D) None of the above.
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Multiple Choice
Q 21Q 21
A taxpayer is married with a qualifying child (dependent), but she has been living separately from her spouse for the last eight months of the year. However, she paid for more than half of the cost of keeping up the household. Her spouse does not want to file jointly. What filing status must she use when filing her tax return? She wants to obtain the maximum legal benefit. a. Married filing separately.
B) Single.
C) Head of household.
D) Qualifying widow(er).
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Multiple Choice
Q 22Q 22
A taxpayer's spouse died on December 31, 2009. He has no qualifying child. Which status should the taxpayer select when filing his 2010 tax return? a. Qualifying widow(er).
B) Married filing jointly.
C) Single.
D) Married filing separately.
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Multiple Choice
Q 23Q 23
Emily is 20 years of age and a full-time student living with her parents. She had wages of $500 ($50 of income tax withholding) for 2010. Can Emily claim her own exemption on her return even though her parents will claim her as a dependent? a. Yes, Emily can claim the exemption.
B) No, Emily cannot claim the exemption.
C) Emily and her parents can both claim the exemption.
D) No one can claim the exemption for Emily.
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Multiple Choice
Q 24Q 24
What is the amount of the personal and dependency exemptions for 2010? a. $3,300.
B) $3,400.
C) $3,650.
D) $3,500.
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Multiple Choice
Q 25Q 25
To be a qualifying child, the taxpayer must meet three general tests and five specific tests. Which of the following is not part of the five specific tests? a. Support test.
B) Age test.
C) Gross income test.
D) Relationship test.
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Multiple Choice
Q 26Q 26
To be a qualifying relative, who has to live in the home of the taxpayer for the entire year? a. Father.
B) Child.
C) Stepchild.
D) Cousin.
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Multiple Choice
Q 27Q 27
Which amount represents the standard deduction for a taxpayer who is 42 years old and claiming head of household status? a. $8,400.
B) $8,350.
C) $5,700.
D) $9,500.
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Multiple Choice
Q 28Q 28
A married couple, both of whom are under 65 years old, decided to file as married filing separately. One of the spouses is going to itemize deductions instead of taking the standard deduction. What is the standard deduction permitted to the other spouse when she files her tax return? a. $11,400.
B) $8,400.
C) $5,700.
D) $0.
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Multiple Choice
Q 29Q 29
Employers are required to withhold social security taxes from wages paid to employees. What is the amount of the social security wage limitation for 2010? a. $106,800.
B) $97,500.
C) $102,000.
D) $94,200.
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Multiple Choice
Q 30Q 30
What is the amount of the tax liability for a married couple with taxable income of $135,500? a. $20,325.
B) $26,238.
C) $33,875.
D) $19,488.
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Multiple Choice
Q 31Q 31
What is the percentage of interest the IRS was charging on assessment (amount of unpaid tax liability) during March 2010? You might want to do this research by going to the IRS Web site (www.irs.gov). a. 6%.
B) 5%.
C) 7%.
D) 4%.
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Multiple Choice
Q 32Q 32
When there is negligence on a return, the IRS charges a penalty of ________of the tax due. a. 25%.
B) 20%.
C) 18%.
D) 10%.
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Multiple Choice
Q 33Q 33
When there is fraud on a return, the IRS charges a penalty of ________ on any portion of understatement of tax that is attributable to the fraud. a. 20%.
B) 25%.
C) 75%.
D) 100%.
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Multiple Choice
Q 34Q 34
The benefits of many deductions, credits, or other benefits are limited to taxpayers with Adjusted Gross Income below certain limits.
a. Explain how the limitation (phaseout) process works.
b. Give two examples of deductions, credits, or other benefits that are limited.
c. Why would Congress wish to limit the benefits of these items?
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Q 35Q 35
List the five types of filing status and briefly explain the requirements for the use of each one.
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Q 36Q 36
In which of the following cases may the taxpayer claim head of household filing status?
a. The taxpayer is single and maintains a household that is the principal place of abode of her infant son.
b. The taxpayer is single, maintains a household for herself, and maintains a separate household that is the principal place of abode of her dependent widowed mother.
c. The taxpayer was married from January to October and lived with his spouse from January to May. From June 1 to December 31, the taxpayer maintained a household that was the principal place of abode of his married son and daughter-in-law, whom the taxpayer can claim as dependents.
d. Same as (c) except the taxpayer lived with his ex-spouse until August and maintained the household from September 1 to the end of the year.
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Q 37Q 37
How many personal exemptions can a taxpayer claim on his or her tax return? Explain your answer.
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Q 38Q 38
Roberta is widowed and lives in an apartment complex. She receives $8,000 of social security income that she uses to pay for rent and other household expenses. The remainder of her living expenses is paid by relatives and neighbors. The total amount of support paid by Roberta and the others totals $22,000. Amounts paid for support during the year are as follows:
a. Which of these persons is entitled to claim Roberta as a dependent absent a multiple support agreement?
b. Under a multiple support agreement, which of these persons is entitled to claim Roberta as a dependent? Explain your answer.
c. If Roberta saved all of her social security income and the other persons paid for the shortfall in the same proportions as shown, which of these persons would be entitled to claim Roberta as a dependent under a multiple support agreement? Explain your answer.
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Q 39Q 39
Shelly is a U.S. citizen and is the 67-year-old widowed mother of Janet. After retirement, Shelly decided to fulfill a lifelong dream and move to Paris. Shelly receives $1,000 of interest income, but all of her other living expenses (including rent on her Paris apartment with spectacular views of the Eiffel Tower) are paid by Janet. Janet resides in Chicago. Is Janet entitled to a dependency exemption for Shelly? Explain your answer.
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Q 40Q 40
Peter is a 21-year-old full-time college student. During 2010, he earned $2,100 from a part-time job and $1,100 in interest income. If Peter is a dependent of his parents, what is his standard deduction amount? If Peter supports himself and is not a dependent of someone else, what is his standard deduction amount?
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Q 41Q 41
Julio and Martina are engaged and are planning to travel to Las Vegas during the 2010 Christmas season and get married around the end of the year. In 2010, Julio expects to earn $45,000 and Martina expects to earn $15,000. Their employers have deducted the appropriate amount of withholding from their paychecks throughout the year. Neither Julio nor Martina has any itemized deductions. They are trying to decide whether they should get married on December 31, 2010, or on January 1, 2011. What do you recommend? Explain your answer (disregard the making work pay credit).
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Q 42Q 42
Determine the amount of the standard deduction for each of the following taxpayers for tax year 2010:
a. Ann, who is single.
b. Adrian and Caroline, who are filing a joint return. Their son is blind.
c. Peter and Elizabeth, who are married and file separate tax returns. Elizabeth will itemize her deductions.
d. Patricia, who earned $1,100 working a part-time job. She can be claimed as a dependent by her parents.
e. Rodolfo, who is over 65 and is single.
f. Bernard, who is a nonresident alien with U.S. income.
g. Manuel, who is 70, and Esther, who is 62 and blind, will file a joint return.
h. Herman, who is 76 and a qualifying widower with a dependent child.
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Q 43Q 43
Using the appropriate tax tables or tax rate schedules, determine the amount of tax liability in each of the following instances.
a. A married couple filing jointly with taxable income of $32,991.
b. A married couple filing jointly with taxable income of $192,257.
c. A married couple filing separately, one spouse with taxable income of $43,885 and the other with $56,218.
d. A single person with taxable income of $79,436.
e. A single person with taxable income of $297,784.
f. A head of household with taxable income of $96,592.
g. A qualifying widow with taxable income of $14,019.
h. A married couple filing jointly with taxable income of $11,216.
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Q 45Q 45
Using the appropriate tax tables or tax rate schedules, determine the tax liability for tax year 2010 in each of the following instances. In each case, assume the taxpayer can take only the standard deduction.
a. A single taxpayer with AGI of $23,493 and one dependent.
b. A single taxpayer with AGI of $169,783 and no dependents.
c. A married couple filing jointly with AGI of $39,945 and two dependents.
d. A married couple filing jointly with AGI of $162,288 and three dependents.
e. A married couple filing jointly with AGI of $389,947 and one dependent.
f. A taxpayer filing married filing separately with AGI of $68,996 and one dependent.
g. A qualifying widow, age 66, with AGI of $49,240 and one dependent.
h. A head of household with AGI of $14,392 and two dependents.
i. A head of household with AGI of $59,226 and one dependent.
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Q 46Q 46
Victoria's 2010 tax return was due on April 15, 2011, but she did not file it until June 12, 2011. Victoria did not file an extension. The tax due on the tax return when filed was $8,500. In 2010, Victoria paid in $12,000 through withholding. Her 2009 tax liability was $11,500. Victoria's AGI for 2010 is less than $150,000. How much penalty will Victoria have to pay (disregard interest)?
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Q 47Q 47
Paul has the following information:
a. How much must Paul pay in estimated taxes to avoid a penalty (disregard the making work pay credit)?
b. If Paul paid $1,000 per quarter, would he have avoided the estimated tax penalty?
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Q 48Q 48
Charles and Joan Thompson file a joint return. In 2009, they had taxable income of $92,370 and paid tax of $15,469. Charles is an advertising executive and Joan is a college professor. During the fall 2010 semester, Joan is planning to take a leave of absence without pay. The Thompsons expect their taxable income to drop to $70,000 in 2010. They expect their 2010 tax liability will be $9,869, which will be the approximate amount of their withholding. Joan anticipates that she will work on academic research during the fall semester.
During September, Joan decides to perform consulting services for some local businesses. Charles and Joan had not anticipated this development. Joan is paid a total of $35,000 during October, November, and December for her work.
What estimated tax payments are Charles and Joan required to make, if any, for tax year 2010? Do you anticipate that the Thompsons will be required to pay an underpayment penalty when they file their 2010 tax return? Explain your answer (disregard the making work pay credit).
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