In connection with the application of the kiddie tax

| March 14, 2016

25: In connection with the application of the kiddie tax, comment on the following:

a. The child has only earned income.

b. The child has a modest amount of unearned income.

c. The child is age 20, not a student, and not disabled.

d. The child is married.

e. Effect of the parental election

f. The result when parental election is made and the married parents file separate returns.

26: During the year, Hernando has the following transactions:

a. Gain on the sale of stock held as an investment for 10 months.

b. Gain on the sale of land held as an investment for 4 years.

c. Gain on the sale of a houseboat owned for 2 years and used for family vacations.

d. Loss on the sale of a reconditioned motorcycle owned for 3 years and used for recreational purposes.

How should Hernando treat these transactions for income tax purpose?

29: Compute the taxable income for 2013 in each of the following independent situations:

a. Drew and Meg, ages 40 and 41, respectively, are married and file a joint return. In addition to four dependent children, they have AGI of $65,000 and itemized deductions of $15,000.

b. Sybil, age 40, is single and supports her dependent parents who live with her, as well as her grandfather who is in a nursing home. She has AGI of $80,000 and itemized deductions of $8,000.

c. Scott, age 49, is a surviving spouse. His household includes two unmarried stepsons who qualify as his dependents. He has AGI of $75,000 and itemized of $10,100.

d. Amelia, age 33, is an abandoned spouse who maintains a household for her three dependent children. She has AGI of $58,000 and itemized deductions of $9,100.

e. Dale, age 42, is divorced but maintains the home in which he and his daughter, Jill, live. Jill is single and qualifies as Dale’s dependent. Dale has AGI of $64,000 and itemized deductions of $9,900.

30: Compute the taxable income for 2013 for Emily on the basis of the following information. Her filing status is single.

Salary

$85,000

Interest income from bonds issued by Xerox

1,100

Alimony payments received

6,000

Contributions to traditional IRA

5,500

Gift from parents

25,000

Short-term capital gain from stock investment

2,000

Amount lost in football office pool (sports gambling is against the law where Emily lives)

500

Number of potential dependents (two cousins, who live in Canada)

?

Age

40

32: Determine the amount of the standard deduction allowed for 2013 in the following independent situations. In each case, assume that the taxpayer is claimed as another person’s dependent.

a. Curtis, age 18, has income as follows: $700 interest from a certificate of deposit and $6,000 from repairing cars. .

b. Mattie, age 18, has income as follows: $600 cash dividends from a stock investment and $4,700 from handling a paper route.

c. Mel, age 16, has income as follows: $800 interest on a bank savings account and $700 for painting a neighbor’s fence.

d. Lucy, age 15, has income as follows: $400 cash dividends from a stock investment and $500 from grooming pets.

e. Sarah, age 67 and a widow, has income as follows: $500 from a bank savings account and $3,200 from babysitting.

34: For tax year 2012, determine the number of personal and dependency exemption in each of the following independent situations:

a. Leo and Amanda (ages 48 and 46, respectively) are husband and wife and furnish more than 50% of the support of their two children. Elton (age 18) and Trista (age 24). During the year, Elton earns $4,500 providing transportation for elderly persons with disabilities, and Trista receives a $5,000 scholarship for tuition at the law school she attends.

b. Audry (age 45) was divorced this year. She maintains a household in which she, her ex-husband, Clint, and his mother, Olive, live and furnishes more than 50% of their support. Olive is age 91 and blind.

c. Crystal, age 45, furnishes more than 50% of the support of her married son, Andy (age 18), and his wife, Paige (age 19), who live with her. During the year, Andy earned $8,000 from a part-time job. All parties live in Iowa (a common law estate).

d. Assume the same facts as in ( c ), except that all parties live in Washington (a community property state).

35: Compute the number of personal and dependency exemptions in each of the following independent situations:

a. Reginald, a U.S. citizen and resident, contributes 100% of the support of his parents who are citizens of Canada and live there.

b. Pablo, a U.S. citizen and resident, contributes 100% of the support of his parents who are citizens of Panama. Pablo’s father is a resident of Panama, and his mother is a legal resident of the United States.

c. Gretchen, a U.S. citizen and resident, contributes 100% of the support of her parents, who are U.S. Citizens but residents of Germany

d. Elena is a U.S. citizen and a resident of Italy. Her household includes Carlos, a 4 year old adopted son who is a citizen of Spain

38: Sam and Elizabeth Jefferson file a joint return and have three children – all of whom qualify as dependents. If the Jefferson have AGI of $322,000, what is their allowable deduction for personal and dependency exemptions for 2013?

39: Wesley and Myrtle (ages 90 and 88, respectively) live in an assisted care facility and for 2012 and 2013 received their support from the following sources

PERCENTAGE OF SUPPORT

Social Security benefits

16%

Son

20%

Niece

29%

Cousin

12%

Brother

11%

Family friend (not related)

12%

a. Which persons are eligible to claim the dependency exemptions under a multiple support agreement?

b. Must Wesley and Myrtle be claimed by the same person(s) for both 2012 and 2013? Explain. .

c. Who, if anyone, can claim their medical expenses

40: Taylor, age 18, is claimed as a dependent by her parents. For 2013, she has the following income: $4,000 wages from a summer job, $1,800 interest from a money market account, and $2,000 interest from city of Boston bonds.

a. What is Taylor’s taxable income for 2013?

b. What is Taylor’s tax for 2013? [(Her parents file a joint return and have taxable income of $130,000 (no dividends or capital gains.)]

41: Walter and Nancy provide 60% of the support of their daughter (age 18) and son-in-law (age 22). The son-in-law (John) is a full-time student at a local university, while the daughter (Irene) holds various part-time jobs from which she earns $11,000. Walter and Nancy engage you to prepare their tax return for 2013. During a meeting with them in late March 2014, you learn that John and Irene have filed a joint return. What tax advice would you give based on the following assumptions:

a. All parties live in Louisiana (a community property state).

b. All parties live in New Jersey (a common law state).

42: Charlotte (age 40) is a surviving spouse and provides all of the support of her four minor children who live with her. She also maintains the household in which her parents live and furnished 60% of their support. Besides interest on City of Miami bonds in the amount of $5,500, Charlotte’s father received $2,400 from a part-time job. Charlotte has a salary of $80,000, a short-term capital loss of $2,000, a cash prize of $4,000 from a church raffle, and itemized deductions of $10, 500. Using the Tax Rate Schedules, compute the 2013 tax liability for Charlotte.

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