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
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?
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
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
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
20. Emily is 20 years of age and a full time student living with her parents. She had wages
$500 ($50 of income tax withholding) for 2007. Can Emily claim her exemption on her
return even though her parents will claim her as a dependent?
a. Yes, Emily can
19. The taxpayers spouse died at the beginning of 2006. He has no qualifying child. Which
status should the taxpayer select when filing his 2007 tax return?
a. Qualifying Widow(er)
b. Married Filing Jointly
d. Married Filing Separately
18. A taxpayer is married with a qualifying child (dependent), but she has been living
separate from her spouse for the last eight months of the year. However, she paid for more
than half of the cost of keeping up the household. Her spouse does not want t
Prepare a table of the possible IRS penalties listed in the text and give a brief summary of the
purpose of each penalty.
Interest charged on
Failure to file a tax
Failure to pay tax
Failure to pay estimated
Under what circumstances must a taxpayer use a tax rate schedule rather than using a tax
If the taxable income of a taxpayer exceeds $100,000, a tax rate schedule must
be used. Taxable income of $100,000 or less requires the use of a tax ta
Under what circumstances should a taxpayer itemize deductions rather than take the standard
A taxpayer should itemize deductions when the amount of total itemized
deductions exceeds the amount of the taxpayers standard deduction.
Mimi is 22 years old and is a full-time student at Ocean County Community College. She
lives with her parents who provide all of her support. During the summer she put her Web
design skills to work and earned $4,000. Can Mimis parents claim her as a depen
. What is the standard deduction for each filing status?
The standard deductions for each filing status for 2007 are:
Married filing jointly
Married filing separately
Head of household