HS 321 Practice Exam Questions With
Correct Answers
Ralph is not married and does not have any children. However, Ralph is
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a very good son and provides more than half of the cost of maintaining
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a very nice apartment for his mother and more than half of her support
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since her only income is a small amount from Social Security. Which of
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the following filing statuses should Ralph use, and why?
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A. Single, because Ralph is not married
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B. Single, because Ralph does not have any qualifying children
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C. Head of household, because Ralph's mother is his dependent
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D. Head of household, because Ralph's mother is a qualifying child -
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CORRECT ANSWER✔✔-The correct answer is (C).Ralph provides more
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than half of his mother's support and her income is below the
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exemption reference limit (which does not count Social Security
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income), so he can claim his mother as a dependent and he is eligible to
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use the head-of-household filing status. Option (D) is incorrect because
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Ralph's mother is a qualifying relative, not a qualifying child. Options (A)
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|and (B) are incorrect; since Ralph is eligible to use the head-of-
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household filing status, he should use that filing status rather than the
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less advantageous single filing status.
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,Kelly, aged 14 and a dependent, has $2,600 in interest and dividends
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and $12,750 in earned income from a part-time job. What is Kelly's
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standard deduction in 2020? | | |
A. $2,200
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B. $13,100
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C. $12,400
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D. $12,750 - CORRECT ANSWER✔✔-The correct answer is (C).The
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standard deduction for a single person is limited to $12,400.
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Henry, single and aged 42, was divorced after 12/31/2018. He had the
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following items of income and expense for the current tax year.
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Wages: $60,000 |
Interest: $1,000 |
Inheritance: $50,000 |
Alimony paid: $10,000 | |
Child support paid: $8,000
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Federal taxes paid: $5,000
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State income taxes paid: $2,000
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Medical expenses: $7,500 | |
What is Henry's adjusted gross income (AGI)?
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A. $49,000
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B. $51,000
|
,C. $59,000
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D. $61,000 - CORRECT ANSWER✔✔-The correct answer is (D).His
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income includes the wages and interest. The alimony paid is not
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deductible for AGI if the divorce decree is post 12/31/2018. Therefore
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his AGI is $61,000.$60,000 + $1,000 = $61,000
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After 1989, Megan purchased series EE savings bonds for $4,000 at the
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age of 26. This year she redeemed the bonds for $8,000 and paid
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qualified higher education expenses in the amount of $5,000 for her
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daughter. How much interest can Megan exclude from her gross income
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this year? |
A. $0
|
B. $4,000
|
C. $1,500
|
D. $2,500 - CORRECT ANSWER✔✔-The correct answer is (D).Because
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Megan did not use all of the proceeds from the bond redemption to pay
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for qualified education expenses, she will be required to include part of
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the interest income from the bonds in her gross income. Megan may
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exclude $2,500 of interest income from her gross income; that is,
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($5,000 ÷ $8,000) x $4,000. Therefore Megan must include $1,500 in her
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gross income, or $4,000 - $2,500.
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Cameron, an unmarried taxpayer using the single filing status, received
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$16,000 of Social Security retirement benefits this year. Cameron also
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received $5,000 of interest income and $45,000 of income from her
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, retirement plan during the year. How much of Cameron's Social Security
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benefits must be included in her gross income this year?
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A. $0 |
B. $8,000
|
C. $13,600
|
D. $16,000 - CORRECT ANSWER✔✔-The correct answer is (C).Since her
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modified adjusted gross income (MAGI) of $50,000 plus one-half of her
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Social Security benefits (0.5 × $16,000 = $8,000) exceeds her adjusted
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base amount of $34,000, she must calculate her includible Social
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Security benefits using the lesser of the amount calculated using
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formula 3 or 4. | | |
Formula 3: 0.85 × $16,000 = $13,600Formula 4: 0.85 × [$50,000 + (0.50
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× $16,000) − $34,000] = $20,400 plus the least of $4,500, the amount
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calculated using formula 1, and the amount calculated using formula
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2Formula 1: 0.50 × $16,000 = $8,000Formula 2: 0.50 × [$50,000 + (0.50
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× $16,000) − $25,000] = $16,500 $4,500 is the least of these three
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numbers.
The formula 4 total is $24,900, or $20,400 + $4,500. The lesser of the
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amounts for formula 3 and 4 is $13,600. Therefore $13,600 of the Social
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Security benefits must be included in Cameron's gross income.
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Charlotte, aged 70, is single and an employee of Interstellar
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Corporation. Her only sources of income this year are $80,000 of W-2
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wages, $6,000 in Social Security benefits, and $1,000 of interest on
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State of Georgia bonds. Based on the above, Charlotte's adjusted gross
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income (AGI) for the current year is
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Correct Answers
Ralph is not married and does not have any children. However, Ralph is
| | | | | | | | | | | | |
a very good son and provides more than half of the cost of maintaining
| | | | | | | | | | | | | |
a very nice apartment for his mother and more than half of her support
| | | | | | | | | | | | | |
since her only income is a small amount from Social Security. Which of
| | | | | | | | | | | | |
the following filing statuses should Ralph use, and why?
| | | | | | | |
A. Single, because Ralph is not married
| | | | | |
B. Single, because Ralph does not have any qualifying children
| | | | | | | | |
C. Head of household, because Ralph's mother is his dependent
| | | | | | | | |
D. Head of household, because Ralph's mother is a qualifying child -
| | | | | | | | | | | |
CORRECT ANSWER✔✔-The correct answer is (C).Ralph provides more
| | | | | | | |
than half of his mother's support and her income is below the
| | | | | | | | | | | |
exemption reference limit (which does not count Social Security
| | | | | | | | |
income), so he can claim his mother as a dependent and he is eligible to
| | | | | | | | | | | | | | |
use the head-of-household filing status. Option (D) is incorrect because
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Ralph's mother is a qualifying relative, not a qualifying child. Options (A)
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|and (B) are incorrect; since Ralph is eligible to use the head-of-
| | | | | | | | | | |
household filing status, he should use that filing status rather than the
| | | | | | | | | | | |
less advantageous single filing status.
| | | |
,Kelly, aged 14 and a dependent, has $2,600 in interest and dividends
| | | | | | | | | | | |
and $12,750 in earned income from a part-time job. What is Kelly's
| | | | | | | | | | | |
standard deduction in 2020? | | |
A. $2,200
|
B. $13,100
|
C. $12,400
|
D. $12,750 - CORRECT ANSWER✔✔-The correct answer is (C).The
| | | | | | | | |
standard deduction for a single person is limited to $12,400.
| | | | | | | | |
Henry, single and aged 42, was divorced after 12/31/2018. He had the
| | | | | | | | | | | |
following items of income and expense for the current tax year.
| | | | | | | | | |
Wages: $60,000 |
Interest: $1,000 |
Inheritance: $50,000 |
Alimony paid: $10,000 | |
Child support paid: $8,000
| | |
Federal taxes paid: $5,000
| | |
State income taxes paid: $2,000
| | | |
Medical expenses: $7,500 | |
What is Henry's adjusted gross income (AGI)?
| | | | | |
A. $49,000
|
B. $51,000
|
,C. $59,000
|
D. $61,000 - CORRECT ANSWER✔✔-The correct answer is (D).His
| | | | | | | | |
income includes the wages and interest. The alimony paid is not
| | | | | | | | | | |
deductible for AGI if the divorce decree is post 12/31/2018. Therefore
| | | | | | | | | | |
his AGI is $61,000.$60,000 + $1,000 = $61,000
| | | | | | |
After 1989, Megan purchased series EE savings bonds for $4,000 at the
| | | | | | | | | | | |
age of 26. This year she redeemed the bonds for $8,000 and paid
| | | | | | | | | | | | |
qualified higher education expenses in the amount of $5,000 for her
| | | | | | | | | | |
daughter. How much interest can Megan exclude from her gross income
| | | | | | | | | | |
this year? |
A. $0
|
B. $4,000
|
C. $1,500
|
D. $2,500 - CORRECT ANSWER✔✔-The correct answer is (D).Because
| | | | | | | | |
Megan did not use all of the proceeds from the bond redemption to pay
| | | | | | | | | | | | |
for qualified education expenses, she will be required to include part of
| | | | | | | | | | | | |
the interest income from the bonds in her gross income. Megan may
| | | | | | | | | | | |
exclude $2,500 of interest income from her gross income; that is,
| | | | | | | | | | |
($5,000 ÷ $8,000) x $4,000. Therefore Megan must include $1,500 in her
| | | | | | | | | | |
gross income, or $4,000 - $2,500.
| | | | | |
Cameron, an unmarried taxpayer using the single filing status, received
| | | | | | | | | |
$16,000 of Social Security retirement benefits this year. Cameron also
| | | | | | | | | |
received $5,000 of interest income and $45,000 of income from her
| | | | | | | | | | |
, retirement plan during the year. How much of Cameron's Social Security
| | | | | | | | | |
benefits must be included in her gross income this year?
| | | | | | | | | |
A. $0 |
B. $8,000
|
C. $13,600
|
D. $16,000 - CORRECT ANSWER✔✔-The correct answer is (C).Since her
| | | | | | | | | |
modified adjusted gross income (MAGI) of $50,000 plus one-half of her
| | | | | | | | | | |
Social Security benefits (0.5 × $16,000 = $8,000) exceeds her adjusted
| | | | | | | | | | |
base amount of $34,000, she must calculate her includible Social
| | | | | | | | | |
Security benefits using the lesser of the amount calculated using
| | | | | | | | | |
formula 3 or 4. | | |
Formula 3: 0.85 × $16,000 = $13,600Formula 4: 0.85 × [$50,000 + (0.50
| | | | | | | | | | | | |
× $16,000) − $34,000] = $20,400 plus the least of $4,500, the amount
| | | | | | | | | | | | |
calculated using formula 1, and the amount calculated using formula
| | | | | | | | | |
2Formula 1: 0.50 × $16,000 = $8,000Formula 2: 0.50 × [$50,000 + (0.50
| | | | | | | | | | | | |
× $16,000) − $25,000] = $16,500 $4,500 is the least of these three
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numbers.
The formula 4 total is $24,900, or $20,400 + $4,500. The lesser of the
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amounts for formula 3 and 4 is $13,600. Therefore $13,600 of the Social
| | | | | | | | | | | |
Security benefits must be included in Cameron's gross income.
| | | | | | | | |
Charlotte, aged 70, is single and an employee of Interstellar
| | | | | | | | | |
Corporation. Her only sources of income this year are $80,000 of W-2
| | | | | | | | | | | |
wages, $6,000 in Social Security benefits, and $1,000 of interest on
| | | | | | | | | | |
State of Georgia bonds. Based on the above, Charlotte's adjusted gross
| | | | | | | | | | |
income (AGI) for the current year is
| | | | | |
