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Answer & Explanation:25 mc questions tax_exam_4.docx
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Tax exam 4
Greg and Jan are married and file a joint tax return. They have two children: Ben and
Kaitlin. Ben, age 20, was a full-time student during the current year and had scholarships of
$12,000. Greg and Jan provided $8,000 to Ben for the rest of his support. Kaitlin, age 16, is
in high school and has a part-time job at the mall where she made $2,200 this year. Greg
and Jan provided $6,000 for her remaining support. How many exemptions may Greg and
Jan claim on their tax return?
1
2
3
4
Walter provided $7,000 of the support of his mother, who lives in a nursing home. Her only
other income is Social Security benefits of $6,900. What is Walter’s filing status and how
many exemptions may he claim?
Single and one.
Single and two.
Head of household and one.
Head of household and two.
Which one of the following items is not included in the support test, assuming that the
funds received are actually spent by the taxpayer?
Social security benefits.
Aid provided by the state which is used to purchase food.
University scholarships for academic excellence.
Purchase of a car by her parents for a student to use.
Felicia, who is single, received support from the following individuals and sources during
the current year:
Dividend income
$1,300
Social security benefits
2,200
Funds from grandparents 3,500
Funds from aunt
1,500
Funds from uncle
500
Which of these individuals may claim a dependency exemption for Felicia under a multiple
support agreement.
Grandparents, aunt, and uncle.
Only the grandparents.
The grandparents or the aunt.
None of the individuals.
Daryl and Linda divorced two years ago and Linda was given custody of their son, Thomas.
During the current year Daryl provided $8,000 of Thomas’s support and Linda provided
$5,000. Which of the following statements is true?
Daryl may claim the dependency exemption because he provided more than 50 percent of
Thomas’s support.
If Linda completes the proper forms to waive the dependency exemption, Daryl may take the
dependency exemption.
If Linda does not complete the proper forms to waive the dependency exemption, then she is
entitled to the dependency exemption.
Both B. and C.
Which of the following is not true of the gross income test for the dependency exemption?
The gross income test applies only to qualifying relatives.
A qualifying relative of the taxpayer under age 19 is exempted from the test.
Social security benefits are always included in the gross income test.
Generally, a dependent’s gross income may not exceed the exemption amount.
Ximena is single and allows her friend, Kate, to live in her home for the entire year and
provides all of her support. Kate is not related to Ximena. Kate is single, has no income, and
is a United States citizen. What is Ximena’s filing status and how many exemptions can she
claim for the current year?
Single and one.
Single and two.
Head of household and one.
Head of household and two.
Wendy is a full-time college student who is claimed as a dependent by her parents. During
2013 she had wages of $2,000 and interest income of $1,200. What is her standard
deduction for 2013?
$1,000
$2,350
$3,500
$5,700
Sharon’s husband passed away in year 10. Which of the following statements is not true?
Sharon may file as married filing joint in year 10.
If Sharon’s dependent son lives with her during year 11 and she provides the support for her
household, she may file as married filing joint in year 11.
If Sharon’s dependent son lives with her during year 12 and she provides the support for her
household, she may file as married filing joint in year 12.
Assuming Sharon lives alone after her husband’s death in year 10, she must file as single for
year 10.
Wendy is a full-time college student who is claimed as a dependent by her parents. During
the current year she had wages of $2,000 and interest income of $1,200. What is the
personal exemption amount that she can claim on her return?
$0
$2,000
$3,200
$3,650
Brett is a single taxpayer who had $100,000 in taxable income (before personal
exemptions) for the current tax year. His itemized deductions are as follows:
Local property taxes
$3,000
Home mortgage interest on loan to acquire residence 8,000
Miscellaneous deductions that exceed 2% of AGI
1,500
What is Brett’s alternative minimum taxable income before the AMT exemption?
$100,000
$103,000
$104,500
$112,500
Which of the following statements is not true with regard to the alternative minimum tax?
The starting point for computing the alternative minimum tax is regular taxable income.
The AMT credit can be carried forward indefinitely.
The AMT exemption is completely phased-out for high income taxpayers.
Taxpayers that do not have tax-exempt interest income are not subject to the alternative
minimum tax.
Which of the following statements is not true with regard to the self-employment tax?
Self-employment income must exceed $400 for this tax to apply.
The self-employment tax is imposed only on individuals that operate a sole proprietorship.
One-half of the self-employment tax is deductible for AGI.
A portion of the self-employment tax is not capped at a certain level of income.
Tyrone received 100 incentive stock options in Year 1 from his employer that have an
exercise price of $20. In Year 2 he exercises the options when the stock is selling for $26.
In Year 4 he sells the stock for $30 per share. Which of the following statements is true?
For AMT purposes Tyrone has income/gain of $600 in Year 2.
For AMT purposes Tyrone has income/gain of $1.000 in Year 4.
For AMT purposes Tyrone has income/gain of $2,000 in Year 1.
Tyrone has no income for AMT purposes with regard to these options.
For the current tax year Reba has a regular tax liability of $12,000 and a tentative minimum
tax of $13,500. Reba’s alternative minimum tax for this year is:
$0
$ 1,500
$12,000
$13,500
Robin is single and maintains a household for her two dependent children who are ages 7
and 9. She has adjusted gross income of $28,000 which consists of wages of $26,000 and a
long-term capital gain of $2,000. She paid her mother $3,000 to care for her children in her
home and also paid $2,000 for daycare during the summer. Her child care credit for this
year is:
$ 560
$ 840
$1,400
$1,750
Which one of the following expenditures will qualify as an expense for the child or
dependent care credit?
After-school expenses for your 10-year old daughter to be supervised until you can pick her up
when you get off work.
Tuition for your 12 year old son to go to a private elementary school.
Payments to a nursing home for a 35 year old dependent who needs to be cared for but is not
mentally or physically incapacitated.
Payments to a housekeeper who cleans your home and supervises your children while your
spouse goes to the spa twice each (spouse does not work).
Which of the following statements concerning the comparison of the American Opportunity
Tax Credit (AOTC) and the Lifetime Learning Tax Credit (LLTC) is not true?
The AOTC can be claimed for four years but the LLTC is not limited in the number of years it can
be claimed.
The AOTC can be claimed only for expenses of the taxpayer, but the LLTC can be claimed for the
taxpayer, the taxpayer’s spouse, and the taxpayer’s dependents.
To qualify for the AOTC the student must be in a degree program, but that is not the case for
the LLTC.
The maximum annual credit that can be claimed is greater for the AOTC than for the LLTC.
Ming is a single taxpayer who began working as an accountant this year after graduating
from school. Her only income was from wages of $15,000. She contributed $3,000 to an
Individual Retirement Account during the year. What is the amount of the Saver’s Credit
that she can claim?
$1,000
$1,500
$2,250
$3,000
Which of the following statements is not true concerning the Earned Income Credit?
The credit can be larger if the taxpayer has a dependent child living in his home who is 14
years old.
To qualify for the credit the taxpayer must have earned income from sources such as wages.
Interest and dividend income earned by the taxpayer can increase the amount of the credit.
The credit is phased out based on earned income or AGI (if greater) exceeding a threshold.
Which of the following is a credit that is a combination of several other credits and that
provides an overall limitation for all of these credits?
Residential Energy Efficient Tax Credit.
Foreign Tax Credit.
Making Work Pay Credit.
General Business Credit.
Which one of the following is an example of a refundable tax credit?
Earned Income Tax Credit.
Elderly Credit.
Personal Energy Tax Credit.
Foreign Tax Credit.
Joan is single and has a dependent son who is 15 years old. Her adjusted gross income this
year is $80,000. What is her allowable child tax credit for the year?
$ 500
$ 750
$1,000
$2,000
Roberto is single and has a dependent son, Thomas, who is a full-time student at UNA
University. This is Thomas’s third year of college. Qualified tuition payments made during
the current tax year are $6,000. Roberto’s adjusted gross income is $45,000. How much is
Roberto’s tax credit for the current tax year?
$0
$1,000
$2,000
$2,500
ABC, Inc., has $120,000 U.S. source income, $80,000 of foreign source income, and $25,000
foreign taxes deemed paid. Assume that the U.S. income tax liability before the foreign tax
credit is $61,250. ABC’s foreign tax credit is:
$0
$24,500
$25,000
$61,250
…
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