ACCT315 Intro to Taxation

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Taxes influence personal decisions such as whether to buy or rent a house.

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Jerry recently paid $20 in tolls for the Florida turnpike. The payment of $20 is considered a tax.

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Taxes are voluntary payments paid to a government for a specific benefit received by the specific taxpayer.

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The federal income tax is an example of a regressive tax system.

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The marginal tax rate is often used in tax planning.

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The gift tax is imposed on the fair market value of items transferred upon death.

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A reduced pre-tax rate of return on municipal bonds is an example of an explicit tax.

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Marc, a single taxpayer, earns $100,000 in taxable income and $10,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2018, what is his effective tax rate (rounded)? (Tax rate schedule) http://ezto-demo.mheducation.com/extMedia/bne/accounting/spilker_10e/taxrateschedule2018.png

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James invests $100,000 in a city of Athens bond that pays 8% interest. Alternatively, James could have invested the $100,000 in a bond recently issued by HighTech, Inc. that pays 10% interest with similar risk as the city of Athens bond. Assume that James’s marginal tax rate is 25%. Which bond should James should choose and why?

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Marc, a single taxpayer, earns $100,000 in taxable income and $10,000 in interest from an investment in city of Birmingham Bonds. If Marc earned an additional $80,000, what would his 2018 marginal tax rate be on the $80,000 (rounded)? (Tax rate schedule)

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Marc, a single taxpayer, earns $100,000 in taxable income and $10,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2018, what is his average tax rate (rounded)? (Tax rate schedule)

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Mitch, a single taxpayer, earns $100,000 in taxable income and $10,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2018, how much federal tax will he owe? (Tax rate schedule)

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Horizontal equity means that two taxpayers with different amounts of income should pay different amounts of tax but fairly in relation to their ability to pay.

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Which of the following is considered a tax:

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Which of the following is an example of a progressive tax system?

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Mitch, a single taxpayer, earns $100,000 in taxable income and $10,000 in interest from an investment in city of birmingham Bonds. Using the US tax rate schedule for year 2018, how much federal tax will he owe? Federal tax due =

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Average tax rate for Marc, single taxpayer, earns $100,000 taxable income, $10,000 interest from investment bond. 2018 US tax rate schedule. Average tax rate =

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Average tax rate for arc, single taxpayer, earns $100,000 taxable income, $10,000 interest from investment bond. 2018 US tax rate schedule. What is his effective tax rate? =

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If Marc earned an additional $80,000, what would his 2018 marginal tax rate be on the $80,000? Marginal tax rate =

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Change in tax / change in income = tax rate

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Hugh has the choice between investing in a City of Heflin bond at 6 percent and a Surething bond at 9 percent. Assuming that both bonds have the same nontax characteristics and that Hugh has a 40 percent marginal tax rate, in which bond should she invest?

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Hugh has the choice between investing in a City of Heflin bond at 6 percent and a Surething bond at 9 percent. Assuming that both bonds have the same nontax characteristics and that Hugh has a 40 percent marginal tax rate, in which bond should she invest? Using the facts in this problem, what interest rate does Surething, Inc. need to offer to make Hugh indifferent between investing in the two bonds? Pretax return =

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Income-related items are excluded from gross income unless specifically included by a provision in the tax code.

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Based on the tax law effective for 2018, it is no longer important to determine who is a taxpayer's dependent because the deduction for dependency exemptions is zero.

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In prior years, John was single and he was a qualifying child of his parents. This year John, age 23 and a full-time student, got married. John and his wife file a joint return. If they were to file separately, John would report a $0 tax liability. John’s wife would report a $200 tax liability. John’s parents cannot claim him as a dependent in the current year.

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A temporary absence from the taxpayer’s home for full-time schoolwork by the child may cause the child to fail the qualifying child residence test.

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For purposes of determining filing status, a taxpayer’s marital status is determined on the last day of the tax year in question.

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If spouses are filing separate returns, both spouses must itemize their deductions even if the itemized deductions are less than the standard deduction for one of the spouses.

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Trudy and Ben file a joint return. Trudy’s reported income creates $200 of income tax and Ben’s reported income creates $180 of income tax. In addition to the reported income, Trudy has unreported income on which she owes $50 of income tax. How much of the $430 potential tax liability is Ben liable for?

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James received $25,000 of compensation from his employer and he received $1,900 of interest from a municipal bond. What is the amount of James’s gross income?

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Which of the following is a from AGI deduction?

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Which of the following is not an itemized deduction?

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Sarah is the Colton family’s 23-year-old daughter. She is a full-time student at an out-of-state university (for 8 months of the year) but plans to return home when the school year ends. During the year, Sarah earned $4,500 of income working part-time. Her support totaled $20,000 for the year. Of this amount, Sarah paid $7,000 with her own funds, her parents paid $12,000, and Sarah’s grandparents paid $1,000. Which of the following statements most accurately describes whether Sarah’s parents can claim a dependency exemption for her?

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Filing status determines all except which of the following

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In May of year 1, David left his wife Juliette. While the couple was apart, they were not legally divorced. Juliette found herself having to financially provide for the couple’s only child (6 years of age) and to pay all the costs of maintaining the household. When Juliette filed her tax return for year 1, she filed a return separate from David. What is Juliette’s most favorable filing status for year 1?

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In year 1, Danny’s wife died. Danny has no dependents. As of the end of year 2, Danny had not remarried. Which is the most advantageous filing status available to Danny in year 2?

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Caroline and her husband Chris got divorced in May of this year. During the year, Caroline provided all the support for herself and her 23-year-old child Hans (not a full-time student) who lived in the same home as Caroline for the entire year. Hans earned $29,000 this year. What is the Caroline’s most favorable filing status for the year?

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Jeremy earned $100,200 in salary and $6,200 in interest income during the year. Jeremy’s employer withheld $11,200 of federal income taxes from Jeremy’s paychecks during the year. Jeremy has one qualifying dependent child who lives with him. Jeremy qualifies to file as head of household and has $23,200 in itemized deductions. (Use the tax rate schedules.)
a. Determine Jeremy’s tax refund or taxes due.
Description Amount
Gross income $106,400
For AGI deductions 0
Adjusted gross income $106,400
Standard deduction 18,000
Itemized deductions 23,200
Greater of s/d or itemized deduction 23,200
Taxable income $83,200
Income tax liability $12,866
Child tax credit 2,000
Tax withholding 11,200
Taxes refunds

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Jeremy earned $100,200 in salary and $6,200 in interest income during the year. Jeremy’s employer withheld $11,200 of federal income taxes from Jeremy’s paychecks during the year. Jeremy has one qualifying dependent child who lives with him. Jeremy qualifies to file as head of household and has $23,200 in itemized deductions.

b. Assume that in addition to the original facts, Jeremy has a long-term capital gain of $4,550. What is Jeremy’s tax refund or tax due including the tax on the capital gain?

Description Amount
Gross income $110,950
For AGI deductions 0
Adjusted gross income $110,950
Standard deduction 18,000
Itemized deductions 23,200
Greater of s/d or itemized
deduction 23,200
Taxable income $87,750
Income tax liability $13,549*
Child tax credit 2,000
Tax withholding 11,200
Taxes due

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Jeremy earned $100,200 in salary and $6,200 in interest income during the year. Jeremy’s employer withheld $11,200 of federal income taxes from Jeremy’s paychecks during the year. Jeremy has one qualifying dependent child who lives with him. Jeremy qualifies to file as head of household and has $23,200 in itemized deductions. (Use the tax rate schedules.)

C. Assume the original facts except that Jeremy had only $7,000 in itemized deductions. What is Jeremy’s tax refund or tax due?

Description Amount
Gross income $110,950
For AGI deductions 0
Adjusted gross income $110,950
Standard deduction 18,000
Itemized deductions 7,000
Greater of s/d or itemized
deduction 23,200
Taxable income $87,750
Income tax liability $13,549*
Child tax credit 2,000
Tax withholding 11,200
Taxes due

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David and Lilly Fernandez have determined their tax liability on their joint tax return to be $1,705. They have made prepayments of $875 and also have a child tax credit of $2,000.

What is the amount of their tax refund or taxes due?

Description Amount
(1)Total tax $1,705
(2)Prepayment 875
(3)Child tax credit 2,000
Tax refund

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Through November, Cameron has received gross income of $60,000. For December, Cameron is considering whether to accept one more work engagements for the year. Engagement 1 will generate $7,960 of revenue at a cost to Cameron of $3,700, which is deductible for AGI. In contrast, engagement 2 will generate $8,250 of qualified business income (QBI) which is eligible for the 20% QBI deduction. Cameron files as a single taxpayer.

Calculate Cameron’s taxable income assuming he chooses engagement 1 and assuming he chooses engagement 2. Assume he has no itemized deductions.

Description Engagement 1 Engagement 2
Gross income before new work engagement $60,000 $60,000
Income from engagement 7,960 8,250
Additional for AGI deduction 3,700 0
Adjusted gross income $64,260 $68,250
Greater of itemized deductions or S/D 12,000 12,000
Deduction for QBI 0 1,650
Taxable income

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Gary and Lakesha were married on December 18 last year. They are now preparing their taxes for the April 15 deadline and are unsure of their filing status. Select all that apply.

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Gary and Lakesha were married on December 18 last year. They are now preparing their taxes for the April 15 deadline and are unsure of their filing status. (Select All That Apply.)

Assume instead that Gary and Lakesha were married on January 5 of this year. What is their filing status for last year (neither has been married before and neither had any dependents last year)?

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Gary and Lakesha were married on December 18 last year. They are now preparing their taxes for the April 15 deadline and are unsure of their filing status. (Select All That Apply.)

What filing status options do Gary and Lakesha have for last year?

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Gary and Lakesha were married on December 18 last year. They are now preparing their taxes for the April 15 deadline and are unsure of their filing status. (Select All That Apply.)

Assume instead that Gary and Lakesha were married on January 1 of this year. What is their filing status for last year (neither has been married before and neither had any dependents last year)?

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Jasper and Crewella Dahvill were married in year 0. They filed joint tax returns in years 1 and 2. In year 3, their relationship was strained and Jasper insisted on filing a separate tax return. In year 4, the couple divorced. Both Jasper and Crewella filed single tax returns in year 4. In year 5, the IRS audited the couple’s joint year 2 tax return and each spouse’s separate year 3 tax returns. The IRS determined that the year 2 joint return and Crewella’s separate year 3 tax return understated Crewella’s self-employment income, causing the joint return year 2 tax liability to be understated by $12,700 and Crewella’s year 3 separate return tax liability to be understated by $7,350. The IRS also assessed penalties and interest on both of these tax returns. Try as it might, the IRS has not been able to locate Crewella, but they have been able to find Jasper.

a. What amount of tax can the IRS require Jasper to pay for the Dahvill’s year 2 joint return?

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Jasper and Crewella Dahvill were married in year 0. They filed joint tax returns in years 1 and 2. In year 3, their relationship was strained and Jasper insisted on filing a separate tax return. In year 4, the couple divorced. Both Jasper and Crewella filed single tax returns in year 4. In year 5, the IRS audited the couple’s joint year 2 tax return and each spouse’s separate year 3 tax returns. The IRS determined that the year 2 joint return and Crewella’s separate year 3 tax return understated Crewella’s self-employment income, causing the joint return year 2 tax liability to be understated by $12,700 and Crewella’s year 3 separate return tax liability to be understated by $7,350. The IRS also assessed penalties and interest on both of these tax returns. Try as it might, the IRS has not been able to locate Crewella, but they have been able to find Jasper.

b. What amount of tax can the IRS require Jasper to pay for Crewella’s year 3 separate tax return?

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Juan and Bonita are married and have two dependent children living at home. This year, Juan is killed in an avalanche while skiing.

a. What is Bonita’s filing status this year?

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JJuan and Bonita are married and have two dependent children living at home. This year, Juan is killed in an avalanche while skiing.

c. Assuming Bonita doesn’t remarry and doesn’t have any dependents next year, what will her filing status be next year?

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Kimberly is divorced and the custodial parent of a three-year-old girl named Bailey. Kimberly and Bailey live with Kimberly’s parents, who pay all the costs of maintaining the household (such as mortgage, property taxes, and food). Kimberly pays for Bailey’s clothing, entertainment, and health insurance costs. These costs comprised only a small part of the total costs of maintaining the household. Kimberly does not qualify as her parents’ dependent.
a. Determine the appropriate filing status for Kimberly.

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Kimberly is divorced and the custodial parent of a three-year-old girl named Bailey. Kimberly and Bailey live with Kimberly’s parents, who pay all the costs of maintaining the household (such as mortgage, property taxes, and food). Kimberly pays for Bailey’s clothing, entertainment, and health insurance costs. These costs comprised only a small part of the total costs of maintaining the household. Kimberly does not qualify as her parents’ dependent.

b. What if Kimberly lived in her own home and provided all the costs of maintaining the household?

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Gross income includes all realized income that is recognized during the year.

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A taxpayer who receives money when taking out a bank loan will include the amount borrowed in their gross income under the all-inclusive definition of income.

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The cash method of accounting requires taxpayers to recognize income when they receive it in the form of cash, property, or services.

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Generally, a portion of each payment from a purchased annuity represents a return of capital.

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The exclusion amount for a purchased fixed-term annuity can be calculated by dividing the cost of the annuity by the total number of payments.

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Gambling winnings are excluded from gross income.

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Larry received $4,250 from disability insurance that he purchased earlier this year from an insurance provider. Larry is allowed to exclude the $4,250 from his gross income.

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Worker’s compensation benefits received from a state-sponsored workers’ compensation plan are taxable.

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This year Bill purchased 1,000 shares of Cain common stock for $12 per share. At year-end the Cain shares were worth $32 per share. What amount must Bill include in income this year?

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Identify the rule that determines whether a taxpayer must include in income a refund of an amount deducted in a previous year:

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Identify the rule that determine whether a married taxpayer must recognize income earned by their spouse:

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Geoff purchased a life annuity for $4,800 that will provide him monthly payments of $100 as long as he lives. Based on IRS tables, Geoff’s life expectancy is 240 months. How much of the first $100 payment will George include in his gross income?

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To calculate the amount realized on the sale of an asset, the proceeds is reduced by which of the following?

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Bonnie and Howard got divorced in 2018. Under the terms of the decree Bonnie will pay Howard $100,000 in cash in each of the next ten years (or until Howard’s death or remarriage). In addition, Bonnie will transfer a residence worth $2,000,000 to Howard and pay $30,000 per year to support their daughter, Kristina, until she turns 19 years old. What amount (if any) is included in Howard’s gross income this year?

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Shelly is a student who has received an academic scholarship to the University. The scholarship paid $4,000 for tuition, $500 for fees, and $400 for books. What amount must Shelly include in her gross income?

Introduction to Taxation, Accounting 315

ACCT315 Intro to Taxation

Taxes influence personal decisions such as whether to buy or rent a house.

Jerry recently paid $20 in tolls for the Florida turnpike. The payment of $20 is considered a tax.

Taxes are voluntary payments paid to a government for a specific benefit received by the specific taxpayer.

The federal income tax is an example of a regressive tax system.

The marginal tax rate is often used in tax planning.

The gift tax is imposed on the fair market value of items transferred upon death.

A reduced pre-tax rate of return on municipal bonds is an example of an explicit tax.

Marc, a single taxpayer, earns $100,000 in taxable income and $10,000 in interest from an investment in city of Birmingham Bonds. If Marc earned an additional $80,000, what would his 2018 marginal tax rate be on the $80,000 (rounded)? (Tax rate schedule)

Marc, a single taxpayer, earns $100,000 in taxable income and $10,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2018, what is his average tax rate (rounded)? (Tax rate schedule)

Mitch, a single taxpayer, earns $100,000 in taxable income and $10,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2018, how much federal tax will he owe? (Tax rate schedule)

Horizontal equity means that two taxpayers with different amounts of income should pay different amounts of tax but fairly in relation to their ability to pay.

Which of the following is considered a tax:

Which of the following is an example of a progressive tax system?

Mitch, a single taxpayer, earns $100,000 in taxable income and $10,000 in interest from an investment in city of birmingham Bonds. Using the US tax rate schedule for year 2018, how much federal tax will he owe? Federal tax due =

Average tax rate for Marc, single taxpayer, earns $100,000 taxable income, $10,000 interest from investment bond. 2018 US tax rate schedule. Average tax rate =

Average tax rate for arc, single taxpayer, earns $100,000 taxable income, $10,000 interest from investment bond. 2018 US tax rate schedule. What is his effective tax rate? =

If Marc earned an additional $80,000, what would his 2018 marginal tax rate be on the $80,000? Marginal tax rate =

Change in tax / change in income = tax rate