SOLUTIONS FOR
QUESTIONS AND PROBLEMS
These solutions were prepared prior to the Coronavirus
Response and Relief Supplemental Appropriations Act, 2021
and the Taxpayer Certainty and Disaster Tax Relief Act of
2020 (included in PL 116-260). Updated solutions for Group
4 and 5 tax return problems are available on the Instructor
Companion site.
CHAPTER 1
THE INDIVIDUAL INCOME TAX RETURN
Group 1 – Multiple Choice Questions
Group 2 – Problems
1. a. Raising revenue to operate the government.
b. Furthering economic goals such as reducing unemployment.
c. Furthering social goals such as encouraging contributions to charities. (LO 1.1)
2. a. $36,300 = $42,000 + $300 – $6,000.
b. $24,800, the greater of itemized deductions or the standard deduction of $24,800.
c. $11,500 = $36,300 – $24,800. (LO 1.3)
3. a. $25,000.
b. $12,400, the greater of total itemized deductions or the standard deduction amount.
c. $12,600 = $25,000 – $12,400. (LO 1.3)
4. a. $53,800 = $54,000 + $2,800 – $3,000 ($7,000 capital loss limited to $3,000).
b. $12,400
c. $41,400 = $53,500 – $12,400. (LO 1.3 and 1.9)
5. a. $47,500 = $48,000 + $2,500 – $3,000.
b. $24,800, the greater of itemized deductions or the standard deduction of $24,800.
c. $22,700 = $47,500 – $24,800.
d. $2,332 (Tax Table) (LO 1.3, 1.5, and 1.8)
6. Adjusted gross income $18,000
Less: Itemized deductions –2,400
Taxable income $15,600
Marco’s tax liability from the Tax Table is $1,678. Note: because they are married and filing separately
and Marco’s spouse Tatiana itemizes her deductions, Marco must also itemize his deductions, even
though the itemized deductions total is less than the standard deduction he would be otherwise
entitled to. (LO 1.3, 1.5, and 1.8)
7. Adjusted gross income ($13,200 + $1,450) $14,650
Less: Standard deduction –12,400
Taxable income $ 2,250
(LO 1.3, 1.5, and 1.8)
(Note: See Chapter 6 for the tax credit computation for dependent college students under age 24.)
1-1
1. D (LO 1.1)
2. C (LO 1.1)
3. B (LO 1.2)
4. D (LO 1.2)
5. C (LO 1.3)
6. B (LO 1.3)
7. D $98,000 – $12,400 =
$85,600 (LO 1.4)
8. B $12,400 standard
deduction (LO 1.4)
9. C (LO 1.5)
10. D (LO 1.5)
11. E (LO 1.6)
12. D (LO 1.6)
13. D (LO 1.6)
14. D (LO 1.6)
15. B (LO 1.7)
16. B (LO 1.7)
17. C $18,650 + $1,650 (LO 1.8)
18. B (LO 1.8)
19. B (LO 1.8)
20. D (LO 1.9)
21. A (LO 1.9)
22. C $25,000 = $240,000 –
($270,000 – $40,000)
(LO 1.9)
23. A $40,000 = $43,000 –
$3,000. The remaining
$4,000 loss is carried
forward. (LO 1.9)
24. A (LO 1.10)
25. E (LO 1.10)
26. B (LO 1.11)
8. a. $34,600 = $47,000 – $12,400.
b. Tax tables. Taxpayers with income up to $100,000 must use the tax tables.
c. $3,958. (LO 1.3, 1.5, and 1.8)
9. a. $66,000 = $50,000 + $8,000 + $5,000 + $3,000.
b. $63,500 = $66,000 – $2,500.
c. $24,800, the greater of itemized deductions or the standard deduction of $24,800.
d. $38,700 = $63,500 – $24,800.
e. $4,252 (LO 1.3, 1.5, and 1.8)
10. a. $89,000 = $85,000 + $4,000.
b. $0.
c. $64,100 = $89,000 – $24,900. (LO 1.3, 1.5, 1.6, and 1.8)
11. Taxable income is: $28,600 = $41,000 – $12,400. Tax liability from the tax tables not the tax rate schedules:
$3,238. (LO 1.3, 1.5, and 1.8)
12. Yes. Since Nicoula owes Social Security taxes on the unreported tips, she must file an income tax
return. (LO 1.4)
13. a. No. Income is less than the $12,400 standard deduction.
b. Yes. Unearned income was more than $1,100. Also, gross income is more than the larger of $1,100
or $1,900 (earned income of $1,550 plus $350).
c. No. Their income is under the $26,100 standard deduction ($24,800 + $1,300 (over 65 years old)).
d. No. Gross income is less than $24,800, the 2020 standard deduction.
e. Yes. His earnings exceeded the $400 limit for self-employed persons.
(Note: All answers can be found in the figures in LO 1.4.)
14. Allen $2,326.
Boyd $2,746.
Caldwell $3,898.
Dell $3,015.
Evans $5,685. (LO 1.5)
15. a. D
b. D
c. A
d. A
e. B or C (LO 1.5)
16. a. Because their income exceeds $100,000, the tax rate schedules must be used.
b. $14,900 = $9,235 + 22% x ($106,000 – $80,250). (LO 1.5)
17. They may file either as married filing joint or married filing separately. They must file married, since they
were married by year-end. (LO 1.5)
18. Head of household. Maggie’s parents meet the tests to qualify as her dependents. Maggie is single.
QUESTIONS AND PROBLEMS
These solutions were prepared prior to the Coronavirus
Response and Relief Supplemental Appropriations Act, 2021
and the Taxpayer Certainty and Disaster Tax Relief Act of
2020 (included in PL 116-260). Updated solutions for Group
4 and 5 tax return problems are available on the Instructor
Companion site.
CHAPTER 1
THE INDIVIDUAL INCOME TAX RETURN
Group 1 – Multiple Choice Questions
Group 2 – Problems
1. a. Raising revenue to operate the government.
b. Furthering economic goals such as reducing unemployment.
c. Furthering social goals such as encouraging contributions to charities. (LO 1.1)
2. a. $36,300 = $42,000 + $300 – $6,000.
b. $24,800, the greater of itemized deductions or the standard deduction of $24,800.
c. $11,500 = $36,300 – $24,800. (LO 1.3)
3. a. $25,000.
b. $12,400, the greater of total itemized deductions or the standard deduction amount.
c. $12,600 = $25,000 – $12,400. (LO 1.3)
4. a. $53,800 = $54,000 + $2,800 – $3,000 ($7,000 capital loss limited to $3,000).
b. $12,400
c. $41,400 = $53,500 – $12,400. (LO 1.3 and 1.9)
5. a. $47,500 = $48,000 + $2,500 – $3,000.
b. $24,800, the greater of itemized deductions or the standard deduction of $24,800.
c. $22,700 = $47,500 – $24,800.
d. $2,332 (Tax Table) (LO 1.3, 1.5, and 1.8)
6. Adjusted gross income $18,000
Less: Itemized deductions –2,400
Taxable income $15,600
Marco’s tax liability from the Tax Table is $1,678. Note: because they are married and filing separately
and Marco’s spouse Tatiana itemizes her deductions, Marco must also itemize his deductions, even
though the itemized deductions total is less than the standard deduction he would be otherwise
entitled to. (LO 1.3, 1.5, and 1.8)
7. Adjusted gross income ($13,200 + $1,450) $14,650
Less: Standard deduction –12,400
Taxable income $ 2,250
(LO 1.3, 1.5, and 1.8)
(Note: See Chapter 6 for the tax credit computation for dependent college students under age 24.)
1-1
1. D (LO 1.1)
2. C (LO 1.1)
3. B (LO 1.2)
4. D (LO 1.2)
5. C (LO 1.3)
6. B (LO 1.3)
7. D $98,000 – $12,400 =
$85,600 (LO 1.4)
8. B $12,400 standard
deduction (LO 1.4)
9. C (LO 1.5)
10. D (LO 1.5)
11. E (LO 1.6)
12. D (LO 1.6)
13. D (LO 1.6)
14. D (LO 1.6)
15. B (LO 1.7)
16. B (LO 1.7)
17. C $18,650 + $1,650 (LO 1.8)
18. B (LO 1.8)
19. B (LO 1.8)
20. D (LO 1.9)
21. A (LO 1.9)
22. C $25,000 = $240,000 –
($270,000 – $40,000)
(LO 1.9)
23. A $40,000 = $43,000 –
$3,000. The remaining
$4,000 loss is carried
forward. (LO 1.9)
24. A (LO 1.10)
25. E (LO 1.10)
26. B (LO 1.11)
8. a. $34,600 = $47,000 – $12,400.
b. Tax tables. Taxpayers with income up to $100,000 must use the tax tables.
c. $3,958. (LO 1.3, 1.5, and 1.8)
9. a. $66,000 = $50,000 + $8,000 + $5,000 + $3,000.
b. $63,500 = $66,000 – $2,500.
c. $24,800, the greater of itemized deductions or the standard deduction of $24,800.
d. $38,700 = $63,500 – $24,800.
e. $4,252 (LO 1.3, 1.5, and 1.8)
10. a. $89,000 = $85,000 + $4,000.
b. $0.
c. $64,100 = $89,000 – $24,900. (LO 1.3, 1.5, 1.6, and 1.8)
11. Taxable income is: $28,600 = $41,000 – $12,400. Tax liability from the tax tables not the tax rate schedules:
$3,238. (LO 1.3, 1.5, and 1.8)
12. Yes. Since Nicoula owes Social Security taxes on the unreported tips, she must file an income tax
return. (LO 1.4)
13. a. No. Income is less than the $12,400 standard deduction.
b. Yes. Unearned income was more than $1,100. Also, gross income is more than the larger of $1,100
or $1,900 (earned income of $1,550 plus $350).
c. No. Their income is under the $26,100 standard deduction ($24,800 + $1,300 (over 65 years old)).
d. No. Gross income is less than $24,800, the 2020 standard deduction.
e. Yes. His earnings exceeded the $400 limit for self-employed persons.
(Note: All answers can be found in the figures in LO 1.4.)
14. Allen $2,326.
Boyd $2,746.
Caldwell $3,898.
Dell $3,015.
Evans $5,685. (LO 1.5)
15. a. D
b. D
c. A
d. A
e. B or C (LO 1.5)
16. a. Because their income exceeds $100,000, the tax rate schedules must be used.
b. $14,900 = $9,235 + 22% x ($106,000 – $80,250). (LO 1.5)
17. They may file either as married filing joint or married filing separately. They must file married, since they
were married by year-end. (LO 1.5)
18. Head of household. Maggie’s parents meet the tests to qualify as her dependents. Maggie is single.