1) Under a divorce agreement executed this year, an ex-wife
receives from her ex-husband cash of $25,000 annually for ten years. The
agreement does not say that the payments are excludible from gross income. Does
the ex-wife have gross income and, if so, how much? Can the ex- husband deduct
the annual payments and, if so, is the deduction For AGI for From AGI? What
Internal Revenue Code Sections answer these questions?
2) According to the AICPA’s Statementson Standards for Tax Services,what duties does a tax
practitioner owe to her client?
3) Why is a thorough knowledge of tax law sources important to a
professional tax practitioner?
4) May a taxpayer claim a dependency exemption for a person if
the taxpayer provides 50% or less of the person’s support.
If so, under
5) In 2014, Justin, a single 18-year old taxpayer, received a
salary of $1,800 and interest income of $1,600. He had
$600 in itemized deductions. Calculate Justin’s taxable
income assuming he
is (a) self-supporting and (b) a dependent of his parents.
6) Jerry and Jenny are a married couple. They provided financial
assistance to several persons during 2014. For the situations below, determine
whether the individuals qualify as dependency exemptions for Jerry and Jenny on
their 2014 Married Filing Joint tax return. Assume in each case that dependency
tests not mentioned have been satisfied.
(a) Brian, age 24, is
Jerry and Jenny’s son. Brian is
a full-time student, and he lives in an apartment near the
and Jenny provide over 50% of Brian’s
support. Brian worked as a stock clerk in a super
market and earned $4,000.
(b) Same facts as above, except that Brian is a part-time
(c) Sheila, age 22, is Jerry
and Jenny’s daughter. She’s a full-time
student and lives in a college
dormitory. Jerry and Jenny provide over
50% of Sheila’s support. Sheila works
part-time as an accounting clerk, and she earned $5,000.
(d) Same facts as in (c), except that Sheila is a part-time
(e) Grandma, age 82, is Jenny’s grandmother, and she
lives with Jerry
and Jenny. In 2014, Grandma’s only income was her Social
Security of $4,800 and interest on U.S. bonds of $4,500. Grandma uses her
income to pay 45% of her total support, and Jerry and provide the rest
of Grandma’s support.
7) In general what factors determine who must file a federal
income tax return? Is an individual required to file a tax return if he or she
owes no tax? If an individual is not required to file a federal income tax
return, are there situations in which the individual might want to file.
8) John and Joan had been married for 20 years before John died
in 2012. Joan and her son Marley, age 21, continued to live at home in years
2012 – 2015. Marley worked part-time (earning $5,000 in each of the four
years). He also attended college on a part-time basis. Joan provided more than
50% of Marley’s support in each year. What
is Joan’s filing status for 2012, 2013, 2014, and
2015? Would Joan’s filing status change if Marley
attended school full-time
rather than part-time? If so, how?
9) Wanda is a single parent who maintained a household for her
unmarried son Jordan, age 19, who worked full-time and earned $16,000.
Wanda provided about 40% of Jordan’s
support but provided all
the expenses of maintaining the household.
What is Wanda’s 2014 tax filing status?
10) Tom and Mary are married and have one dependent son. In
April, Tom left Mary a note that he needed his freedom and was leaving her. As
of December, Mary has neither heard from nor seen Tom. Mary fully supported her
daughter and completely maintained the household. What is Mary’s filing
11) Jake and Janice are a married couple with two dependent
children. In 2014, their salaries totaled $130,000, and they suffered a capital
loss of $8,000. They also received $1,000 of tax- exempt interest. They paid
home mortgage interest of $10,000, state income taxes of $4,000, and medical
expenses of $3,000. They also contributed $5,000 to charity. On their 2014
Married Filing Joint tax return what is their (a) adjusted gross income; (b)
their total itemized deductions; (c) the amount of their exemptions; and (d)
their taxable income.
12) Chinita is a single taxpayer, whose salary was $51,000 in
2014. In that year, she also suffered a $5,000 short-term capital loss. Her
itemized deductions for the year totaled $4,000. What are Chinita’s
2014 (a) adjusted gross income;; (b) taxable income;; and (c) tax
13) When is income treated as earned by an accrual basis
14) Jean owns a small unincorporated business. Her 15-year-old
son Bernardo works part-time in the business and was paid wages of $3,000 in
the current year. Who is taxed on his earnings, Bernardo or Jean? Explain.
15) Geraldo rented an office building to Brian for $3,000 per
month. On 12/29/13, Geraldo received a deposit of $4,000
in addition to the first and last months’
rent. Brian commenced occupancy of the building
on 1/02/14. On 7/15/14, Brian closed his business and filed for bankruptcy.
Geraldo collected rent for February, March, and April on the first day of each
month. He received the May rent on 5/10/14, but collected no payments
thereafter. Geraldo withheld $800 from Brian’s deposit because
of damage to the property and $1,500
for unpaid rent. He refunded the balance of the deposit to Brian. What amount
of the above payments should Geraldo have reported as gross income in 2013 and
16) Humphrey and Lauren filed a 2014 joint return. Humphrey
earned $31,000 during the year before losing his job. Lauren received Social
Security benefits of $5,000. What was the taxable portion of the Social
Security benefits? What would have been the taxable portion of the Social
Security benefits if Humphrey had earned $46,000 in 2014? Explain.
17) Ingrid inherited $10,000 of City of Baltimore, Maryland bonds
in February. In March she received interest of $500 on the bonds, and in April
she sold the bonds for a $200 gain. Ingrid redeemed Series EE U.S. Savings
Bonds that she had purchased several years ago. The accumulated interest
totaled $800. Ingrid also received $300 of interest on bonds issued by the City
of Montreal, Canada. What amount of these receipts, if any, should Ingrid
include in her gross income.
18) For each of the following, indicate whether the amount is
(a) Katrina won $3000 in the state lottery.
(b) Robert won a $500 prize for his entry in a poetry contest.
(c) Lizbeth was awarded $2,000 when
she was selected “Teacher of the Year” by her local
19) In each of the following situations, what
amount must be included in the taxpayer’s
(a) Laverne received a $1,500 tuition scholarship to attend
Fredonia Law School. In addition, Fredonia paid Laverne $4,000 per year to work
part-time in the campus cafeteria.
(b) Marvin received a $10,000 football scholarship for attending
Western University. His scholarship covered tuition, room, board, laundry, and
books. $4,000 of the scholarship was designated for room and board and laundry.
It was understood that Marvin would participate in the school’s intercollegiate football program, but he
was not required to do so.
(c) Nightingale Nursing School requires all third-year students
to work 20 hours per week at an affiliated local hospital. Each student is paid
$10 per hour. Ruth, a third-year student, earned $10,000 for such work during
20) Lamar Corp. has four employees, for whom it provides group
life insurance in accordance with a non-discrimination policy. The details are:
(a) How much may Lamar deduct for group term life insurance