For YOURlecturer ONLY

ACCT 323 7980 INCOME TAX I (Spring 2016)

WEEK 2 HOMEWORK

1) Rob attended school during most of 2015, during which time he was supported by his parents.

In December 2015, Rob married Ann. He graduated and started working in 2016. Ann worked

during 2015 and earned $18,000. Rob’s only income was $1,100 of interest. Rob’s parents are

in the 28% federal income tax bracket. Thus, claiming Rob as a dependent would save his

parents $1,120 (.28 * $4,000) on their 2015 federal income tax return.

(a) What is Rob and Ann’s federal income tax liability if they file a joint 2015 tax

return?

(b) What is Ann’s federal income tax liability if she files a Married Filing Separate 2015

return to enable Rob’s parents to claim him as a dependent?

(c) Which of the above alternatives would be better for the family as a whole? In other

words, will filing a joint return save Rob and Ann more than $1,120?

For your calculations, use the 2015 Tax Rate Schedules and standard deduction and exemption

amounts, which can be found at https://www.irs.gov/irb/2014-47_IRB/ar14.html.

2) In 2015, George helped to support his mother Maria, his son Joe, and his niece Wanda. How

many dependency exemptions can George claim on his 2015 federal income tax return given

these additional facts? Explain your answer.

Maria lived with George and received $12,000 in Social Security benefits that she used to pay

for food, clothing, medical expenses, and other living expenses. George provided Maria’s room,

which has a rental value of $5,000, and paid an additional $4,000 toward her support.

Joe, age 12, lived with his mother, Laura. George paid $12,000 in child support, and Laura

provided an additional $4,000 of support.

Wanda, age 20, is a part-time college student who lived in an apartment. She earned $6,000

working part-time and received a scholarship of $2,000. Wanda’s father provided $4,000 toward

her support, and George provided $7,000.

3) In the following cases, does the taxpayer qualify for head-of-household filing status. Explain

your answers.

(a) Fernando is divorced from his wife. He maintains a household for himself and his

dependent mother.

(b) Beverly is divorced from her husband. She maintains a home for herself and

supports an elderly aunt who lives in a retirement home.

(c) Cynthia was widowed last year. She maintains a household for herself and her

dependent daughter who lived with her during the year.

(d) Dwayne is not divorced, but lived apart from his wife for the entire year. He

maintains a household for himself and his dependent daughter. He receives no financial support

from his wife.

4) Sanjay’s salary is $44,000, and he received dividends of $600. He also received a statement

from SK partnership showing his share of the partnership income was $4,000. The partnership

also distributed $1,000 to Sanjay during the year and $600 after year-end. Sanjay won $2,000 in

the state lottery, but he spent $50 on lottery tickets. Which of the above amounts are taxable?

5) Which taxpayers must use the Tax Computation Worksheet and which taxpayers must use the

Tax Tables to figure their tax?

6) As the result of a divorce, a taxpayer received the following during the current year:

Cash from the property settlement $100,000

Child support 12,000

Alimony payments 30,000

What amount, if any, must be included in gross income for the current year?

(a) $0

(b) $30,000

(c) $130,00

0 (d) $142,00

0

7) Which of the following constitutes constructive receipt in the year ended December 31, 2015?

(a) A salary check received at 6:00 pm on 12/31/15, after all banks have closed.

(b) A rent check received on 12/30/15 by the manager of an apartment complex. The

manager normally collects the rent for the owner. The owner was out of town.

(c) A paycheck received on 12/29/15 that was not honored by the bank because the

employer’s account did not have sufficient funds.

(d) A check received on 12/30/15. The check was postdated 1/02/16.

(e) A check received on 1/02/16. The check had been mailed on 12/30/15.

8) Which of the following would be includable in gross income? A $5,000 prize won on a

television quiz show; $500 received from your employer because you developed an idea that

reduced your employer’s operating costs; $500 borrowed from your mother to finance your last

year in college. As a graduation gift, mom told you that you did not have to repay the $500.

9) Jack is the beneficiary of a life insurance policy taken out by his father several years ago.

Jack’s father passed away, and Jack has the option to receive the $100,000 face value of the

policy in cash or to receive annual payments of $1,000 per month for the rest of his life. Jack is

now 65, and his father paid $32,000 in premiums over the years. How much must Jack include

in gross income this year if he takes the $100,000 face amount of the policy this year? Assume

that Jack elects to take the annual payments and that his life expectancy is 20 years, what amount

of the annual payments, if any, can he exclude from gross income? How much must he include

in gross income, if any? Explain.

10) An individual reports the following capital transactions in the current year:

Short-term capital gain $ 1,000

Short-term capital loss $ (11,000)

Long-term capital gain $ 10,000

Long-term capital loss $ (6,000)

What amount is deductible in arriving at adjusted gross income?

a. $10,000

b. $6,000

c. $3,000

d. $0