111. Norman and Linda are married taxpayers with taxable income of $126,000 in 2020.
a. When you calculate their tax liability are you required to use the tax tables or the tax rate schedules, or does it matter?
b. What is their tax liability?
ANSWER:
a. Taxpayers with incomes of $100,000 or more must use the tax rate schedules.
b. Tax liability: $19,300 = $9,235 + [($126,000 - $80,250) × 22%]
112. Curt and Linda were married on December 31 of the prior year. What are their options for filing status for their prior year taxes?
ANSWER:
They may file either as married filing joint or married filing separately. Even though they were married on the last day of the year, they must file as if they were married for the full year.
113. Madeline is single and supports her 85-year-old parents who live in a senior home paid for by Madeline and have no income. What is Madeline’s filing status and why?
ANSWER:
Head of household. Madeline is single and Madeline’s parents meet the tests to qualify as her dependents. Parents are the only exception to the requirement that dependents must live in the same household as the taxpayer to qualify the taxpayer for head of household status.
114. List each alternative filing status available to unmarried individual taxpayers.
ANSWER:
Single.
Head of household.
Qualifying widow(er).
115. Determine from the tax table or the tax rate schedule, whichever is appropriate, the amount of the income tax for each of the following taxpayers for 2020.
Taxpayer(s)
Filing Status
Taxable Income
Income Tax
Macintosh
Single
$35,700
Hindmarsh
MFS
$62,000
Kinney
MFJ
$143,000
Rosenthal
H of H
$91,500
Wilk
Single
$21,400
ANSWER:
Macintosh, $4,090 (tax table)
Hindmarsh, $9,436 (tax table)
Kinney, $23,040 [tax rate schedule: $9,235 + [($143,000 − $80,250) × 22%]
Rosenthal, $14,604 (tax table)
Wilk, $2,374 (tax table)
116. Jessica, a 17-year-old guitarist in a successful band, earns $100,000 a year and is completely self-supporting although she lives with her parents. Can her parents claim her as a dependent? Why or why not?
ANSWER:
Because Jessica is self-supporting, her parents may not claim her as a dependent. The self-support test is applied to both children and relatives who otherwise qualify, so Jessica is disqualified.
117. Karl’s father, Vronsky, is a 60-year-old Russian citizen who lived in Russia for the full year. Karl supported Vronsky while he looked for work. Vronsky had no income. Can Karl claim Vronsky as a dependent?
ANSWER:
No. Vronsky cannot be claimed as a dependent because he is not a US citizen, or resident of United States, Mexico, or Canada.
118. Calculate the amount of the standard deduction the taxpayers should claim on their 2020 income tax returns.
a. Kelly and Glenn are married with one dependent child. They file a joint return, are in good health, and both of them are under 65 years of age. They also support her aging father.
b. Fran is 24 years old, in good health, and single.
c. George and Georgina are married and file a joint return. George is 64 years old and Georgina is 63 years old.
d. Norm is 62 years old, single, and blind.
e. Kimberly qualifies for head of household filing status, is 42 years old, and is in good health.
f. Lizzie is 11 years old and her only income is $3,200 of interest on a savings account. She is claimed as a dependent on her parents’ tax return.
ANSWER:
a. $24,800
b. $12,400
c. $24,800
d. $14,050. An additional $1,650 is allowed due to blindness
e. $18,650
f. $1,100. She is claimed as a dependent on her parents’ tax return
119. How should a taxpayer decide whether to take the standard deduction or claim itemized deductions?
ANSWER:
A taxpayer should claim the larger of the standard deduction or the total allowed itemized deductions since the amount reduces the taxpayer’s income subject to tax.
120. Mike purchased stock in MDH Corporation 5 years ago for $15,500. This year he sold it for $12,650 and then paid a $250 sales commission to his broker. He had no other capital gains or losses during the year.