Taxchapter4文档格式.docx
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Taxchapter4文档格式.docx
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1.[LO1]Howarerealizedincome,grossincome,andtaxableincomesimilar,andhowaretheydifferent?
Realizedincomeismorebroadlydefinedthangrossincomewhichismorebroadlydefinedthantaxableincome.
Grossincomeisrealizedincomeminusexclusionsanddeferrals.Thatis,grossincomeistheincomethattaxpayersactuallyreportontheirtaxreturnsandpaytaxeson.TaxableincomeisgrossincomeminusallowabledeductionsforandfromAGI.Taxableincomeisthebaseusedtocomputethetaxduebeforeapplicablecredits.
2.[LO1]Aretaxpayersrequiredtoincludeallrealizedincomeingrossincome?
Explain.
No.Realizedincomeisthestartingpointforcomputinggrossincome.However,thetaxlawsallowcertaintypesofincometobepermanentlyexcludedfromtaxationordeferredfromtaxationuntilasubsequenttaxyear.Consequently,taxpayersarenotrequiredtoincludeallrealizedincomeingrossincome.
3.[LO1]Allelseequal,shouldtaxpayersprefertoexcludeincomeordeferit?
Why?
Taxpayersshouldprefertoexcludeincomeratherthandeferincome.Whentheyexcludeincometheyarenevertaxedontheincome.Whentheydeferincome,theyarestilltaxedontheincome,buttheyaretaxedinasubsequenttaxyear.
4.[LO1]CompareandcontrastforandfromAGIdeductions.WhyareforAGIdeductionslikelymorevaluabletotaxpayersthanfromAGIdeductions?
AlldeductionsfromgrossincomeallowedbyCongressareeither“forAGI”or“fromAGI”deductions.ForAGIdeductionsareoftenreferredtoasdeductionsabovetheline,whiledeductionsfromAGIarereferredtoasdeductionsbelowtheline.ThelineisAGI(thelastlineonthefrontpageoftheindividualtaxreturn).
Thoughbothtypesofdeductionsmayreduceataxpayer’staxableincome,forAGIdeductionsaremorevaluabletotaxpayersbecause
(1)ForAGIdeductionsalwaysreducetaxableincomedollarfordollarwhilefromAGIdeductionsmaybelimitedormaynotprovideanyincrementaltaxbenefit(forexample,taxpayersthatdon’titemizedon’treceiveanytaxbenefitoffromAGIdeductions).
(2)ForAGIdeductionsreduceAGIwhichmayallowtaxpayerstodeductmoreoftheirfromAGIdeductions(andothertaxbenefits)thataresubjecttoAGIlimitations.FromAGIdeductionsdon’taffectAGI.
5.[LO1]Whatisthedifferencebetweengrossincomeandadjustedgrossincome,andwhatisthedifferencebetweenadjustedgrossincomeandtaxableincome?
Grossincomeismoreinclusivethanisadjustedgrossincome(AGI).Grossincomeisallincomefromwhateversourcederivedthatisnotexcludedordeferredfromincome.AGIis
grossincomeminusforAGIdeductions.SotheprimarydifferencebetweengrossincomeandAGIistheamountofforAGIdeductions.
Adjustedgrossincomeismoreinclusivethantaxableincome.AGIisgrossincomeminusforAGIdeductions.TaxableincomeisgrossincomeminusforAGIdeductionsminusfromAGIdeductions.Consequently,thedifferencebetweenAGIandtaxableincomeistheamountoffromAGIdeductions.
6.[LO1]Howdotaxpayersdeterminewhethertheyshoulddeducttheiritemizeddeductionsorutilizethestandarddeduction?
Taxpayersgenerallydeductthegreaterof
(1)theapplicablestandarddeductionor
(2)theirtotalitemizeddeductions,afterlimitations.However,taxpayersthatdonotwantbotherwithtrackingitemizeddeductionsmaychoosetodeductthestandarddeductionevenwhenitemizeddeductionsmayexceedthestandarddeduction.
7.[LO1].Whyaresomedeductionscalled“above-the-line”deductionsandothersarecalled“below-the-line”deductions?
Whatisthe“line”?
Thelineisadjustedgrossincome(AGI).AGIisconsideredthelinebecauseofthesignificanceitplaysintheamountofdeductionsallowedfromAGI.ForAGIdeductionsarecalledabove-the-linedeductionsbecausetheyaredeductedindeterminingAGI.FromAGIdeductionsarecalledbelow-the-linedeductionsbecausetheyaredeductedafterAGIhasbeendetermined.TheyaredeductedfromAGItoarriveattaxableincome.Below-the-linedeductionsmaybesubjecttolimitationsbasedonthetaxpayer’sAGI.
8.[LO1]Whatisthedifferencebetweenataxdeductionandataxcredit?
Isonemorebeneficialthantheother?
Adeductiongenerallyreducestaxableincomedollarfordollar(althoughfromAGIdeductionsmaynotreducetaxableincomedollarfordollar).Thistranslatesintoataxsavingsintheamountofthedeductiontimesthemarginaltaxrate.Incontrast,creditsreduceataxpayer’staxespayabledollarfordollar.Thus,generallyspeaking,creditsaremorevaluablethandeductions.
9.[LO1]Whattypesofincomearetaxedatratesdifferentthantheratesprovidedintaxrateschedulesandtaxtables?
Qualifyingdividendsandnetlong-termcapitalgains(technicallycallednetcapitalgains)aretaxedatratesdifferentthantheratesembeddedinthetablesorpublishedinthetaxrateschedules.Qualifyingdividendsaregenerallytaxedat15%butcanbetaxedaslowas0%.Long-termcapitalgainsaregenerallytaxedat15%butcanbetaxedaslowas0%andashighas28%.
10.[LO1]Whattypesoffederalincome-basedtaxes,otherthantheregularincometax,mighttaxpayersberequiredtopay?
Ingeneralterms,whatisthetaxbaseforeachoftheseothertaxesonincome?
Inadditiontotheindividualincometax,individualsmayalsoberequiredtopayotherincomebasedtaxessuchasthealternativeminimumtax(AMT)orself-employmenttaxes.Thesetaxesareimposedonataxbaseotherthantheindividual’staxableincome.TheAMTtaxbaseisalternativeminimumtaxableincome,whichisthetaxpayer’staxable
incomeadjustedforcertainitemstomorecloselyreflectthetaxpayer’seconomicincomethandoestaxableincomeThetaxbaseforself-employmenttaxesisthenetearningsderivedfromself-employmentactivities.
11.[LO1]Identifythreewaystaxpayerscanpaytheirincometaxestothegovernment.
Taxpayerscanpaytaxesthrough
(1)incometaxeswithheldfromthetaxpayer’ssalaryorwagesbyheremployer,
(2)estimatedtaxpaymentsdirectlytothegovernment,and(3)taxesthetaxpayeroverpaidinthepreviousyearthatthetaxpayerelectstoapplyasanestimatedpaymentforthecurrentyear.
12.[LO2]EmilyandTonyarerecentlymarriedcollegestudents.CanEmilyqualifyasherparents’dependent?
Dependingonthecircumstances,Emilymayqualifyasadependentofherparents.Ataxpayerwhofilesajointreturnwithhisorherspousemaynotqualifyasadependentofanother,unlessthereisnotaxliabilityonthecouple'
sjointreturnandtherewouldnothavebeenanytaxliabilityoneitherspouse’staxreturniftheyhadfiledseparately.AslongasEmilyandTonymeetthesecriteria,thenEmilywillqualifyasadependentofherparentsassumingshealsomeetsthetesttobeherparents’qualifyingchildorqualifyingrelative.
13.[LO2]Ingeneralterms,whatarethedifferencesintherulesfordeterminingwhoisaqualifyingchildandwhoqualifiesasadependentasaqualifyingrelative?
Isitpossibleforsomeonetobeaqualifyingchildandaqualifyingrelativeofthesametaxpayer?
Whyorwhynot?
Therulesfordeterminingwhoqualifiesasadependentasaqualifyingchildandwhoqualifiesasadependentasaqualifyingrelativeoverlaptosomeextent.Theprimarydifferencesbetweenthetwoare
(1)therelationshiprequirementismoreinclusiveforqualifyingrelativesthanqualifyingchildren,
(2)qualifyingchildrenaresubjecttoagerestrictionswhilequalifyingrelativesarenot,
(3)qualifyingrelativesaresubjecttoagrossincomerestrictionwhilequalifyingchildrenarenot,and
(4)taxpayersneednotprovidemorethanhalfaqualifyingchild’ssupport,thoughthechildcannotprovidemorethanhalfofhis/herownsupport,but,absentamultiplesupportagreement,taxpayersmustprovidemorethanhalfthesupportofaqualifyingrelative.
Anindividualmaynotbeaqualifyingchildandaqualifyingrelativeofthesametaxpayer.Bydefinition,aqualifyingrelativemustbesomeonewhoisnotaqualifyingchild.Consequently,thequalifyingrelativetestsapplyonlywhentheindividualdoesnotpassthequalifyingchildtests.
14.[LO2]Howdotwotaxpayersdeterminewhohasprioritytoclaimthedependencyexemptionforaqualifyingchildofbothtaxpayerswhenneithertaxpayerisaparentofthechild(assumethechilddoesnotqualifyasaqualifyingchildforanyparent)?
Howdoparentsdeterminewhogetstodeductthedependencyexemptionforaqualifyingchildofbothparentswhentheparentsaredivorcedorfileseparatereturns?
Thepriorityinclaimingaqualifyingchildisasfollows:
(1)Theparentofthechild.
(2)Ifbothparentsqualify,thentheparentwithwhomthechildhasresidedwiththelongestduringtheyear.
(3)Ifthechildresideswiththeparentsequallyorthechildresideswithtaxpayerswhoarenotparents(thechildisnotaqualifyingchildofaparent),thenthetaxpayerwiththehighestAGI.
Inthecaseofdivorcedparentsorparentsfilingseparately,theparentwithwhomthechildhasresidedwiththelongestduringtheyearhaspriorityfortheexemption(thecustodialparent).However,thecustodialparentcanreleasetheexemptiontothenoncustodialparentaspartofthedivorcedecreeorseparationinstrument.Ifthechildresidesanequaltimewitheachparent(aswouldlikelybethecaseifthemarriedcouplewasfilingseparately),theparentwiththehigherAGIhaspriority.
15.[LO2]Isabellaprovides30%ofthesupportforherfatherHastingswholivesinanapartmentbyhimselfandhasnogrossincome.IsitpossibleforIsabe
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