Taxable Income Tax Questions

CHAPTER 3--COMPUTING THE TAX 3 copy Key
1.Under the Federal income tax formula for individuals, a choice must be made between claiming deductions for AGI and itemized deductions.
FALSE
2.Under the Federal income tax formula for individuals, the determination of adjusted gross income (AGI) follows that of taxable income (TI).
FALSE
3.Under the income tax formula, a taxpayer must choose between deductions from AGI and the standard deduction.
TRUE
4.After Carolyn moves out of the apartment she had rented as her personal residence, she recovers her damage deposit of $500. The $500 is income to Carolyn.
FALSE
5.An “above the line” deduction refers to a deduction for AGI.
TRUE
6.Because they appear on page 1 of Form 1040, itemized deductions…show more content…
Warren’s standard deduction is the greater of $400 (earned income) + $300 or $950. Thus, $1,500 + $400 ‒ $950 = $950 taxable income.
b.$1,200. Warren’s standard deduction now becomes $1,500 ($1,200 + $300). Thus, $1,500 + $1,200 ‒ $1,500 = $1,200 taxable income.
112.Meg, age 23, is a full-time law student and is claimed by her parents as a dependent. During 2012, she received $1,400 interest income from a bank savings account and $5,800 from a part-time job. What is Meg’s taxable income for 2012?
$1,250. Meg’s standard deduction is the greater of $5,800 (earned income) + $300 or $950. But the $6,100 is limited to $5,950 (the standard deduction allowed a single person). Thus, $1,400 + $5,800 ‒ $5,950 = $1,250 taxable income.
113.Heloise, age 74 and a widow, is claimed as a dependent by her daughter. For 2012, she had income as follows: $2,500 interest on municipal bonds; $3,200 Social Security benefits; $3,000 income from a part-time job; and $2,800 dividends on stock investments. What is Heloise’s taxable income for 2012?
$1,050. $3,000 (income from job) + $2,800 (dividends) ‒ $3,300 (basic standard deduction is $3,000 + $300) ‒ $1,450 (additional standard deduction for age) = $1,050. The Social Security benefits of $3,200 and the interest on municipal bonds of $2,500 are not…show more content…
The amount received for the contract was $2,400. The taxpayer should report $1,600 of income in 2013.
TRUE
15.An advance payment received in June 2012 by an accrual basis and calendar year taxpayer for services to be provided over a 36-month period can be spread over four tax years.
FALSE
16.An accrual basis taxpayer who owns and operates a professional basketball team is allowed to allocate income from season ticket sales on the basis of the number of games played during the year.
TRUE
17.In 2012, Juan, a cash basis taxpayer, was offered $3 million for signing a professional baseball contract. He counteroffered that he would receive $900,000 per year for 4 years beginning in 2013. The team accepted the counteroffer. Juan constructively received $3 million in 2012.
FALSE
18.The constructive receipt doctrine requires that income must be recognized when it is made available to the cash basis taxpayer, although it has not been actually received. The constructive receipt doctrine does not apply to accrual basis taxpayers.