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Unformatted text preview: e to file if a return is filed by the extended due date. No. She must pay 90% of the current year's tax or $9,000 (90% $10,000) and she paid $9,100 ($5,750 ($500 4 $2,000) $1,350). Yes. She must pay the lesser of 100% of last year's tax or $9,950 or 90% of the current year's tax or $9,000. During the year, she only paid $7,750 ($5,750 ($500 4 $2,000)). The penalty is computed for the period running from the due date of each estimate to April 15, the due date for the return. Yes, on the $900 from April 15 until July 9. 4-29 4-30 (See pp. 4-35 through 4-39.) 4-31 From a tax policy perspective, it is important to reach some point of final closure in the tax process. The statute of limitations places a time limit--usually three years--on both the IRS and taxpayers for making changes in filed returns. This restriction provides some limit on the period of time a taxpayer needs to keep detailed records; it also provides a framework for the IRS. (See p. 4-41) The six-year period of limitations applies when there is a substantial omission of income from a filed return. Substantial omission is defined as more than 25 percent of the total gross income reported on the return that was filed. (See p. 4-42.) The tax schedules, the standard deduction amounts, and the personal dependency exemptions for individual taxpayers are indexed. The Consumer Price Index is used to annually adjust these items for price level changes. (See p. 4-43) 4-32 4-33 PROBLEMS
4-34 a. b. c. d. e. Two, one personal and one dependency. R provides more than 50 percent of the support of his mother, who meets the gross income test since Social Security benefits are generally excluded. One. D supports F, but F fails to meet the gross income test because he has gross income of $4,400. Three. D can be claimed since the gross income test does not apply to a qualifying child. Three. Presumably the Smiths can claim their high school son. They cannot claim Hans (a foreign exchange student) since he was in the home less than the entire year. Three. The gross income test does not apply to a qualifying child (a student under age 24) since S is not self supporting (scholarship is not included). Total support is $9,000 and S provided $4,000 which is not greater than the required 50 percent. Note that scholarships are not considered support. (See pp. 4-2 through 4-12.) Solutions to Problem Materials 4-7 4-35 a. b. c. Two. Because A's mother is fully supported by him, it is implied that she meets the gross income test. Two. Two personal exemptions. Five. The eldest child qualifies because she is a qualifying child (the gross income test does not apply because she was a full-time student under age 24). Five months is the minimum period a child can be a full-time student and still be exempted from the gross income test. (See pp. 4-2 through 4-12.) 4-36 a. b. No. The only exception to the joint return test is for a married couple that pays no tax. Not necessarily. If their daughter files married filing separately, the parents may be able to claim an exemption for her. If the parents claim an exemption, the value is more than it is to the couple since the parents are in a higher tax bracket. The value of the exemption for their daughter Kate is $925 ($3,700 25%). But if they take this approach, Kate loses her exemption deduction, may have a reduced standard deduction, and loses the ability to file jointly. If Jim filed separately, he would pay tax of $675 [($16,250 $5,800 standard deduction $3,700 personal exem...
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- Spring '11