Exam (elaborations)
TAX 4001_ Exam 1 2019.
TAX 4001_ Exam 1 2019.
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TAX 4001: Exam 1 2019A student receives scholarships. How much is included in gross income? - ANS-As long
as the money is going towards educational expenses, the amount can be excluded from
gross income. This does not include room & board, travel, and optional supplies.
If the amount received is payment for teaching, research, or other services as a
requirement, then it is fully taxable.
Abandoned Spouse - ANS-The abandoned spouse provision enables a married
taxpayer with a dependent child whose spouse did not live in the taxpayer's home
during the last six months of the tax year to file as a head of household rather than as
married filing separately.
They must pay more than half the costs of maintaining the household for the entire year.
This is the main residency of the child for more than half the year.
After Tax rate of return on a bond (regular and municipal) - ANS-Example 1-12
Price*before tax return rate=int. inc.*income tax rate=income tax
interest income-income tax=after tax income
after tax income/price=after tax rate of return
Are athletic scholarships taxable? - ANS-They run the same way as regular
scholarships as long as the student can be expected but not required to play a sport,
requires no other activity other than playing a sport, and is not canceled if the student
cannot participate.
Are individual taxpayers required to file a tax return? - ANS-It all depends on their filing
status and gross income (see exhibit 2-1). Gross income thresholds are indexed each
year for inflation.
Are there exceptions to the statute of limitations? - ANS-Yes, the period can be
extended depending on the circumstances.
If the taxpayer omits items of gross income that exceed 25% of the gross income
reported -- extends to 6 years
, For fraudulent returns or failure to file can cause the case to be open indefinitely.
Taxpayers can also request to the IRS extension so that both sides have sufficient time
to resolve issues.
Average tax rate - ANS-total tax / taxable income
C Corp's return filing day, extension length - ANS-the 15th of the fourth month following
the company's year-end
can request an automatic 6 or 7 months of extension
Characteristics of for AGI deductions - ANS-- "above the line" deductions
- reduces AGI
- generally more valuable than from AGI deductions
Constructive Receipt Doctrine - ANS-taxpayer must recognize income when it is
actually or constructively received
Dependency Requirements - ANS-1. Must be a resident of the U.S., Canada, or Mexico.
2. Must not file a joint return with spouse unless there is no tax liability.
3. Must be considered either a qualifying child or qualifying relative.
Disability Income - ANS-Excluded:
-Pmts from workers comp
-compensation from physical injury
-Reimbursements by insurance for medical expenses paid by taxpayer
-disability pmts received from an employee-purchased policy
Included:
-punitive damages
Do corporations have to file a tax return? - ANS-YES! Regardless of their taxable
income
Do estates & trusts have to file a tax return? - ANS-Yes if their gross income exceeds
$600.
Effective Tax Rate - ANS-total tax/total income
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