1) G had income and expenses as follows for the current taxable year:
Exclusions (municipal bond interest)
Deductions for A.G.I.
Total itemized deductions
What are G’s adjusted gross income and her taxable income, respectively?
a. $29,200; $12,280
b. $31,200; $14,680
c. $29,200; $17,050
d. $28,000; $12,680
a. Adjusted gross income is gross income ($32,400 - $2,000 = $30,400) less any
deductions for adjusted gross income ($1,200), or $29,200. Taxable income is the
adjusted gross income minus the larger of the standard deduction ($5,450) or the
itemized deductions ($9,920) and minus the personal and dependency
2) J and Z, husband and wife, created a trust for J’s aging mother, Betty. This year the
trust received dividend income of $15,000 and distributed $10,000 to Betty. The taxable
income of the trust and Betty is?
a. Trust $15,000, Betty $10,000
b. Trust $0, Betty $15,000
c. Trust $5,000, Betty $10,000
d. Trust $15,000, Betty $0
e. None of the above.
c. A trust is treated as a separate taxable entity. It is taxed on the taxable income it
received but is entitled to a deduction to the extent it distributes it. The trust received
$15,000 of taxable dividend income and distributed $10,000 so the trust reports $5,000
($15,000 - $10,000) of taxable income while Betty reports $10,000 taxable income.
Note that all of the taxable income is taxed.