South-Western Federal Taxation Notes on Chapter 2-5 questions and answers well illustrated.

South-Western Federal Taxation Notes on Chapter 2-5 questions and answers well illustrated. In terms of the tax formula applicable to individual taxpayers, which, if any, of the following statements is correct? a. In arriving at taxable income, a taxpayer must choose between the standard deduction and itemized deductions. b. In arriving at AGI, personal and dependency exemptions are subtracted from gross income. c. In arriving at taxable income, a taxpayer must choose between the standard deduction and the deduction for qualified business income. d. The tax formula does not apply if a taxpayer elects to claim the standard deduction. e. None of these. - correct answers.ANSWER: a RATIONALE: The standard deduction is not an alternative; it is a component of the tax formula (choice d.). Personal and dependency exemptions have been suspended from 2018 through 2025 and, if allowed, are subtracted after AGI is determined (choice b.). The choice is between the standard deduction and deductions from AGI (choice a.) In terms of the tax formula applicable to individual taxpayers, which, if any, of the following statements is correct? a. In arriving at AGI, a taxpayer must elect between claiming deductions for AGI and deductions from AGI. b. In arriving at taxable income, a taxpayer must elect between claiming deductions for AGI and deductions from AGI. c. If a taxpayer has deductions for AGI, the standard deduction is not available. d. In arriving at taxable income, a taxpayer must elect between deductions for AGI and the standard deduction. e. None of these - correct answers.ANSWER: e RATIONALE: AGI is computed by claiming deductions for and no election is required (choice a.). In arriving at taxable income, deductions for AGI are allowed (choice b.) and the election is between deductions from AGI and the standard deduction (choices c. and d.). Regarding the tax formula and its relationship to Form 1040, which, if any, of the following statements is correct? a. Most exclusions from gross income are reported on page 2 of Form 1040. b. An "above the line deduction" refers to a deduction from AGI. c. A "page 1 deduction" refers to a deduction for AGI. d. The taxable income (TI) amount appears both at the bottom of page 1 and at the top of page 2 of Form 1040. e. None of these. - correct answers.ANSWER: c RATIONALE: Most exclusions are not reported on Form 1040, but those that are appear on page 1 —not on page 2 (choice a.). A "page 1 deduction" as well as an "above the line deduction" are deductions for AGI (choices b. and c.). AGI, not TI, is at the bottom of page 1 and the top of page 2 of Form 1040 (choice d.). Which of the following items, if any, is deductible? a. Parking expenses incurred in connection with jury duty—taxpayer is a dentist. b. Substantiated gambling losses (not in excess of gambling winnings) from state lottery. c. Contributions to mayor's reelection campaign. d. Speeding ticket incurred while on business. e. Premiums paid on personal life insurance policy. - correct answers.ANSWER: b RATIONALE: All other choices are not deductible Which, if any, of the following is a deduction for AGI? a. Contributions to a traditional Individual Retirement Account. b. Child support payments. c. Funeral expenses. d. Loss on the sale of a personal residence. e. Medical expenses. - correct answers.ANSWER: a RATIONALE: IRA contributions (choice a.) are deductions for AGI. Child support payments (choice b.), funeral expenses (choice c.), and personal capital losses (choice d.) are nondeductible items. Medical expenses are deductions from AGI. Which, if any, of the following is a deduction for AGI? a. State and local sales taxes. b. Interest on home mortgage. c. Charitable contributions. d. Unreimbursed moving expenses of an employee (not in the military). e. None of these. - correct answers.ANSWER: e RATIONALE: Moving expenses are not deductible (unless individual is in the military). All other items (choices a., b., and c.) are deductions from AGI. Which, if any, of the statements regarding the standard deduction is correct? a. Some taxpayers may qualify for two types of standard deductions. b. The standard deduction is not available to taxpayers who are dependents. c. The standard deduction may be taken as a for AGI deduction. d. The basic standard deduction is indexed for inflation but the additional standard deduction is not. e. None of these. - correct answers.ANSWER: a RATIONALE: An example of two additional standard deductions would be a taxpayer who is age 65 (or older) and blind (choice a.). Both the basic and the additional standard deductions are subject to indexation (choice d.). Dependents are allowed a limited standard deduction (choice b.). The standard deductions are in lieu of deductions from AGI—not for AGI (choice c.). Which, if any, of the following statements relating to the standard deduction is correct? a. If a taxpayer dies during the year, his (or her) standard deduction must be prorated. b. If a taxpayer is claimed as a dependent of another, his (or her) additional standard deduction is allowed in full (i.e., no adjustment is necessary). c. If spouses file separate returns, both spouses must claim the standard deduction (rather than itemize their deductions from AGI). d. If a taxpayer is claimed as a dependent of another, no basic standard deduction is allowed. e. None of these. - correct answers.b RATIONALE: In the case of death, no apportionment is required and the full standard deduction is allowed (choice a.). If married taxpayers file separate returns and one spouse itemizes, the other spouse must also itemize. However, there is no requirement that they each claim the standard deduction—although they may do so (choice c.). A basic standard deduction is allowed for dependents although its determination is subject to special rules (choice d.). During 2018, Marvin had the following transactions: Salary $50,000 Bank loan (proceeds used to buy personal auto) 10,000 Alimony paid (divorce was finalized in 2010). 12,000 Child support paid 6,000 Gift from aunt 20,000 Marvin's AGI is:, a. $32,000.