Solutions to Homework Assignments Chapter Essay Example

Solutions to Homework Assignments: Chapter Paper The line is GAG (the last line on the front page of the individual tax return). Though both types Of deductions may reduce a taxpayers taxable income, for GAG deductions are generally more valuable to taxpayers because they reduce GAG which may allow taxpayers to deduct more of their from GAG deductions (and other tax benefits) that are subject to GAG limitations. From GAG deductions dont affect GAG. 11. Why are some deductions called above-the-line deductions and others are called twelfth-line deductions? What is the line? The line is adjusted gross income (GAG). GAG is considered the line because of the significance it plays in the amount of deductions allowed from GAG. for GAG deductions are called bother-line deductions because they are deducted in determining GAG. From GAG deductions are called below-the-line deductions because they are deducted after GAG has been determined. They are deducted from GAG to arrive at taxable income, Below-the-line deductions may be subject to limitations based on the taxpayers GAG. 2. What is the difference between a tax deduction and a tax credit? Is one more beneficial than the Other? Explain. A deduction generally reduces taxable income dollar for dollar (although from GAG deductions may not reduce taxable income dollar for dollar). This translates into a tax savings in the I mount Of the deduction times the marginal tax rate. In contrast, credits reduce a taxpayers taxes payable dollar for dollar. Thus. Generally speaking, credits are more valua ble than deductions. 20. We will write a custom essay sample on Solutions to Homework Assignments: Chapter specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Solutions to Homework Assignments: Chapter specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Solutions to Homework Assignments: Chapter specifically for you FOR ONLY $16.38 $13.9/page Hire Writer Isabella provides of the support for her father Hastings who lives in an apartment by himself and has no gross income, Is it possible for Isabella to claim a dependency exemption for her father? Explain. Because her father meets the relationship and gross income test for a qualifying relative, the support test is the only obstacle for Isabella to claim a dependency exemption for her father _ The basic support test requires that Isabella must have provided more than half of the support for her father in order to claim a dependency exemption for him. Because Isabella provides only 30% of her fathers support, she does not meet the basic test. However, Isabella could potentially qualify to claim a dependency exemption for her father under a multiple support agreement. For Isabella to qualify, the following requirements must be met: 1. No other taxpayer paid over half of her fathers support. 2. Isabella and at least one other person provided more than half the support of her father, and Isabella and the other person or persons would have en allowed to claim an exemption for Hastings except for the fact that neither met the support test. . Isabella provided over 10% of her fathers support (she provided 30%). 4 The other person or persons who provided more than 10% of Hastings support must provide a signed statement to Isabella agreeing not to claim Hastings as a dependent. Isabella would include the names, addresses, and social security numbers of each other person on a Form 2120- which she would include with her tax return for the y ear, 31 Rank the following three single taxpayers in order of the magnitude of taxable income (from lowest to highest) and explain your results. Named Gross Income Deductions Poor GAG Itemized Deductions $ 80,000 8,000 0 Baker S 80,000 4,000 4,000 Chin S 80,000 0 8,000 Chin has the highest taxable income, followed by Baker and then Named. Chins taxable income is highest because he had no for GAG deductions, and Named has the lowest because he had the most for GAG deductions. Baker did not benefit from the itemized deductions because they did not exceed the standard deduction. Chin only benefited from the itemized deductions to the extent the deductions exceeded the standard deduction. See the following analysis: Description Named Baker Chin Computation (1) Gross income (2) For GAG deductions (3) Adjusted gross income (4) Standard deduction (5) Itemized deductions (6) Greater of standard deductions or itemized deductions (7) personal and dependency exemptions 580,000 (8, COO) $72,000 (6,100) 0 (6, 100) 580,000 (4, COO) $76,000 (6,100) (4,000) (6,100) 580,000 0 580,000 (6, 100) (8, COO) (8,000) Named: (4) > (5) Baker: (4) > (5) Chin: (S) > (4) (1)+ (2) Single taxpayer (3,900) 3,900 x I (personal exemption) Taxable income 562,000 $66,000 $68,100 32. Caraways husband passed away in 2012. She needs to determine whether jasmine, her 17-year old step-daughter who is single, qualifies as her dependent in 2013. Jasmine is a resident but not a citizen of the united States. She lived in Cassowary;s home from June IS through December 31 , 2013. Cassowary provided more than halt of Jasmines support for the 2013. A. Is Cassowary allowed to claim a dependency exemption for Jasmine for 2013? Yes, Cassowary may claim a dependency exemption for Jasmine in 2013. Jasmine meets the citizenship/ residency test because she is a resident Of the United States, and she meets he requirements to be considered Caraways qualifying child as follows: Test Relationship Age Residence Support Jasmine Yes, stepdaughter qualifies Jasmine is under 19 at the end of the year Jasmine had the same principal residence as Cassowary for more than half the year Jasmine does not provide more than half her own support. B. Would Cassowary be allowed to claim a dependency exemption for Jasmine for 2013 if Cassowary provided more than half of Jasmines support in 2013, Jasmine lived in Caraways home from July 15 through December 31 of 2013, and Jasmine reported gross income of $5,000 in 2013? No. Jasmine would fail the qualifying child test because she did not have the same principal residence as Cassowary for more than half the year. Jasmine would fail the qualifying relative test because her gross income exceeds the 53,900 personal exemption amount for 2013. C. Would Cassowary be allowed to claim a dependency exemption for Jasmine for 2013 if Cassowary provided more than half of Jasmines support in 201 3, Jasmine lived in Caraways home from July 15 through December 31 of 2013, and Jasmine reported gross income of $2,500 in 2013? Yes, Jasmine would qualify as Caraways qualifying relative as allows: Test Relationship Support Gross income Jasmine Yes, stepdaughter qualifies Cassowary provided more than half Of Jasmines support Jasmines gross income does not exceed the dependency exemption amount. 44. Gary and Lakes were married on December 31 last year. They are now preparing their taxes for the April 15 deadline and are unsure of their filing status. A. What filing status options do Gary and Lakes have for last year? To be married for filing status purposes, taxpayers must be married at the end of the year. Although Gary and Lakes were married on the last day of the year, hey are still considered married for the entire year tort filing purposes. Gary and Lakes may file as married filing jointly, or they may elect to file as married filing separately. B. Assume instead that Gary and Lakes were married on January I of this year, What is their filing status for last year (neither has been married before and neither had any dependents last year)? Single. Gary and Lakes were not married at the end of the year, therefore they must both file single, 48 In each of the following independent situations, determine the taxpayers filing status and the number of personal and dependency exemptions the sprayer is allowed to claim. A. Prank is single and supports his 17-year-old brother, Bill. Bill earned $3,000 and did not live with Frank. Single with two exemptions; one personal and one dependency exemption for Bill. 4 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 Franks household for more than half the year. Frank can claim an exemption for Bill because Bill qualifies as Franks qualifying relative as follows: Test Relationship Age Residence Support Gross income b. Bill Yes, Bill is taxpayers brother, Not applicable to qualifying relative Not applicable to qualifying relative Yes, more than half of Bills support is provided by Frank. Yes, Bills gross income ($3,000) is less than the exemption amount, 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 two personal exemptions and one dependency exemption for Steve Steve meets the test to be Geneva and her husbands qualifying child as follows: Test Relationship Age Residence Support Steve Yes, Steve is the taxpayers son. Yes, under age 24 and a full-time student (and younger than parents). Yes, temporary absences away at school count as time in the parents home Yes, even though the Steve earned $13,100, he did not use any of that money to provide for his support. Staves parents provided more than half (all, in fact) Of his support for the year. A qualifying child is not subject to the gross income test. Hams spouse died last year, and Hams has not remarried. Hams supports his father Reggae, age 78, who lives in a nursing home and had interest income this year of SO,500. Head of household with two exemptions. Hams is not a qualifying widower because he does not maintain a household for a dependent child. However, he does qualify for head of household because he is not married and he pays more than halt the cost of maintaining a separate household that is the principal place of abode for his father, and his father also qualifies as his dependent (as a qualifying relative) as follows: Test Relationship Age Reggae Yes, Reggae is Hams father. Not applicable to qualifying relative Residence Support Gross income Not applicable to qualifying relative Yes, Hams provides more than half Of Regiss support. Yes, Regiss gross income of $2,500 is less than the exemption amount. Because Reggae is considered to be Hams qualifying relative (and a qualifying person for purposes of the head of household filing status). Hams may also claim a dependency exemption for Reggae. D. Irene is married but has not seen her spouse since February. She supports her spouses 18-year-old child Dolores, who lives with Irene. Dolores earned $4,500 this year. Head of household with two exemptions. Irene qualifies for being treated as unmarried for the year (abandoned spouse) as follows: Test Married Separate Return Maintains Home Time Separated Irene Yes, Irene is still married at the end of the year, Yes, Irene files a separate return from her spouse, Yes, Irene provides more than halt the cost to maintaining a home tort a quailing child. Yes, Irene has not lived with her spouse for the last six months of the year. Because she is treated as though she were unmarried, she may file as head of household because she pays more than half the costs (for more than half the cable year) of maintaining a household that is the principal place of abode for a dependent who is her qualifying child. Dolores is Irene qualifying child, as determined below: Test Relationship Age Residence Support Dolores Yes, Dolores is the taxpayers stepchild. Yes, under age 19 (and younger than Irene) Yes, Dolores lived with taxpayer for more than half of the year _ Yes, Dolores did not provide more than half of her own support. Irene may claim one personal exemption for herself and one dependency exemption for Dolores. E. Assume the same facts as in part d. Also assume that Craig is Urines husband. Craig supports his 12-year-old son Ethan, who lives with Craig. Ethan did not earn any income. Head of household with two exemptions. Craig qualifies for being treated as unmarried (abandoned spouse rules) as follow. Was: 6 Test Married Separate Return Maintains Home Time Separated Irene Yes, Craig is still married at the end of the year. Yes, Craig files a separate return trot his spouse. Yes, Craig provides more than halt the cost to maintaining a home for a qualifying child. Yes, Craig has not lived with his spouse tort the last six months of the year. Because he is treated as though she were unmarried, he may file as head of should because he pays more than half the costs (for more than half the taxable year) of maintaining a household that is the principal place of abode for a dependent who is his qualifying child. Ethan is Crags qualifying child, as determined below: Test Relationship Age Residence Support Dolores Yes, Ethan is the taxpayers child. Yes, under age I g (and younger than Craig) Yes, Ethan lived with taxpayer for more than half of the year. Yes, Ethan did not provide more than half Of his own support. Craig may claim one personal exemption for himself and one dependency exemption for Ethan. Note that both Irene in part d. ND Craig may claim head of household filing status because they both qualify to be treated as unmarried for filing status purposes. 54 Demeanor and Jeanine Jackson have been married for 20 years and have four children who quality as their dependents (Damascus, Jeanine, Michael, and Candace).