TAX 9930 Chapter Notes - Chapter 2: Adjusted Gross Income, Concurrent Estate
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âLauren, a singleâ taxpayer, had the following income and deductions for the tax year 2017â:
Requirement a. Compute Lauren's taxable income and federal tax liability for 2017.(Calculate the tax using the tax rate schedule. Do not round interim tax calculations. Round the amount entered into the cell to the nearest wholeâdollar.)
Requirement b. Compute Lauren's marginal, average, and effective tax rates. â(Round your answers to two decimalâ places, X.XX%.)
Requirement c. For tax planningâ purposes, which of the three rates in Part b is the mostâ important?
INCOME: | Salary | $90,000 |
Business Income | 24,000 | |
Interest income from bonds | 6,000 | |
Tax-exempt bond interest | 4,400 | |
TOTAL INCOME | $124,400 | |
DEDUCTIONS: | Business expenses | $11,500 |
Itemized deductions | 10,000 | |
Personal exemption | 4,050 | |
TOTAL DEDUCTIONS | $25,550 |
PERSONAL AND DEPENDENCY EXEMPTION AND PHASE-OUTS | ||
Personal and dependency exemption | $4,050 | |
Phase-outs for high income taxpayers: | ||
Personal and dependency exemptions are reduced by 2% for each $2,500 increment (or part of increment) | ||
for AGI above the threshold amount. | ||
Itemized deductions are reduced by 3% for each dollar of AGI above the threshold amounts (taxpayers cannot | ||
lose more than 80% of their allowable itemized deductions). | ||
For both provisions, the AGI threshold amounts are: | ||
Married individuals filing joint returns and surviving spouses | $313,800 | |
Heads of households | 287,650 | |
Unmarried individuals (other than surviving spouses and heads of households) | 261,500 | |
Married individuals filing separate returns | 156,900 |
STANDARD DEDUCTION | |||
Filing Status | |||
Married individuals filing joint returns and surviving spouses | $12,700 | ||
Heads of households | 9,350 | ||
Unmarried individuals (other than surviving spouses and heads of households) | 6,350 | ||
Married individuals filing separate returns | 6,350 | ||
Additional standard deduction for the aged and the blind | |||
Individual who is married and surviving spouses | 1,250 | * | |
Individual who is unmarried and not a surviving spouse | 1,550 | * | |
Taxpayer claimed as dependent on another taxpayerâs return: Greater of (1) earned income plus $350 or (2) $1,050. | |||
* These amounts are $2,500 and $3,100, respectively, for a taxpayer who is both aged and blind. |
Single
If taxable income is: The tax is:
Not over $9,325. . . . . . . . . . . . . . . . . . . .10% of taxable income.
Over $9,325 but not over $37,950. . . . . . . . .$932.50 + 15% of the excess over $9,325.
Over $37,950 but not over $91,900. . . . . . .$5,226.25 + 25% of the excess over $37,950.
Over $91,900 but not over $191,650. . . . . .$18,713.75 + 28% of the excess over $91,900.
Over $191,650 but not over $416,700. . . . .$46,643.75 + 33% of the excess over $191,650.
Over $416,700 but not over $418,400. . . . .$120,910.25 + 35% of the excess over $416,700.
Over $418,400. . . . . . . . . . . . . . . . . . . . .$121,505.25 + 39.6% of the excess over $418,400.
1. Income earned but unpaid at the time of a decedentâsdeath is deemed to be income in respect of a decedent (IRD). Whichof the following statements concerning IRD is correct? a) The income must be reported on the decedentâs final federalincome tax return. b) The income is taxable to the person or entity receivingit. c) IRD includes income earned by the executor on estateassets. d) The character of the income as taxable or nontaxable ischanged when passed to the recipient. |
2. The federal estate tax is a) A tax on the right of a decedent to transfer property b) A tax on the right of a beneficiary to inherit property c) A tax levied only on a decedentâs probate property d) An excise tax levied on the privilege of accumulatingwealth. |
3. The owner of a successful business wishes to retireand sell the business to her daughter. The business is worthsubstantially more than the ownerâs basis. The owner and herdaughter have agreed to an installment sale. Which of the followingstatements concerning this sale iscorrect? a) The sale price should be lower than the fair market value ofthe business to avoid estate or gift tax complications. b) The installment period must be limited to 10 years or less toavoid adverse estate tax consequences. c) The principal payments payable after the sellerâs death avoidestate inclusion. d) The interest rate specified should be reasonable to avoidadverse gift or income tax consequences. |
4. Which of the following statements concerningguardians is correct? a) A guardian for personal care is called a guardian adlitem b) A special guardian can be appointed by the court to protect aminorâs rights in a legal proceeding. c) A guardian named in a deceased parentâs will is binding onthe court. d) A guardian receives the legal authority to act from thedeceased parentâs will. |