A married couple, both of whom are under 65 years old, decided to file married filing
separately. One of the spouses is going to itemize deductions, instead of taking the standard
deduction. What is the standard deduction permitted to the other spouse whe
The benefit of many deductions, credits, or other benefits are limited to taxpayers with
Adjusted Gross Income below certain limits.
a. Explain how the limitation (phaseout) process works.
b. Give two examples of deductions, credits, or other benefits tha
Your friend John files his own tax returns. He received a computer as a dividend from a
closely-held corporation. He says that he does not need to report the computer as dividend
income because the dividend was not paid in cash. Is he right?
Under what circumstances are social security benefits taxable to a single taxpayer?
If the provisional income of a single taxpayer exceeds $25,000, then a portion of
the Social Security benefits received will be taxable. Provisional income is
Under what circumstances is a state or local income tax refund included in the taxable
income of a taxpayer?
If a taxpayer deducted state or local taxes as an itemized deduction in the prior
year, the taxpayer must report income in the year in whi
How do dividends and earnings and profits relate to each other?
A dividend is a distribution to a shareholder that is made from the earnings and
profits of the corporation. A distribution that is not made from earnings and
profits is not a dividen
Under what circumstances is a dividend non-taxable to a shareholder recipient?
When a distribution is made by a corporation to its shareholders, the distribution
is a taxable dividend to the extent of current or accumulated earnings and profits
Leo owns all the stock in a newly-formed corporation. During 2007 the first year of
operation, the corporation realized current earnings and profits of $10,000. Leo received a
$12,000 distribution from the corporation. How much, if any, of the distributio
What is a dividend?
A dividend is a distribution of property by a corporation to its shareholders. The
dividend must be paid from the earnings and profits of the enterprise.
8. How are dividends taxed?
Dividends are taxed at rates of eithe
Interest on corporate bonds is taxable to the recipient while interest on municipal bonds is
tax-free. Would you expect that the interest rate on a corporate bond would be higher or
lower than the rate on a municipal bond of comparable quality and term? W
Refer to Example 3-4 in the chapter. Explain why Antonio is required to report income even
though he did not receive an asset (either cash or property).
Antonio received a benefit (he was better off economically) when Arturo paid
Millie on Antonio
22. To be a qualifying child, the taxpayer must meet three general tests and five specific
tests. Which one is not part of the five specific tests?
a. Support test
b. Age test
c. Gross income test
d. Relationship test
Answer: c. The gross income test does
What are the four specific tests necessary to be a qualifying relative of the taxpayer?
A person qualifies as a qualifying relative if he or she meets all four of the
following tests: Not a qualifying child test, relationship or member of househol
What age must a child be at the end of the year for purposes of meeting the age test under the
qualifying child rules?
At the end of the year, the child must be: under the age of 19; under the age of
24 and a full time student; or totally and perm
7. What are the five specific tests necessary to be a qualifying child of the taxpayer?
A person qualifies as a qualifying child if he or she meets all five of the following
tests: Relationship test, age test, residency test, support test, and spe
6. What are the three general tests that a qualifying person must meet to be a dependent of
In order to be a dependent of the taxpayer, a qualifying child and a qualifying
relative must meet the three general tests: Dependent taxpaye
4. George and Debbie were legally married on December 31, 2007. Can they file their 2007
income tax return using married filing jointly? Why or why not? What other filing status
choices do they have, if any.
Yes, George and Debbie can file using t
3. What qualifications are necessary in order to file as head of household?
In order to qualify as head of household, the taxpayer must be unmarried at the
end of the tax year, be a U.S. citizen or resident throughout the year, not be a
2. What are the five types of filing statuses?
The five types of filing statuses are:
Married filing a joint return
Married filing separate returns
Head of household
Qualifying widow(er) with dependent child
What is a multiple support agreement and what is its purpose?
Normally, in order to claim someone as a dependent a taxpayer must provide
more than half the support of the person. At times, an individual may receive
support from multiple persons, b