Chapter 9 Exercises

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Chapter 9 (Individuals as Taxpayers) Exercises 1. What is the difference between a tax deduction and a tax credit? Is one more beneficial than the other? 2. Beth received the following amounts during the year: Salary $30,000 Interest on savings account 900 Gift from her aunt 10,000 Prize won in state lottery 1,000 Alimony from ex-husband (divorced in 2015) 12,000 Child support from ex-husband 6,000 Damages for physical injury in auto accident 25,000 Ten $50 bills in an unmarked envelope found in an airport (airport authorities could not locate anyone who claimed ownership) 500 Federal income tax refund for last year’s tax overpayment 120 In addition, her stock investments increased in value by $5,000. Review Exhibits 9.1 and 9.2 to determine the amount Beth must include in the computation of taxable income and the amount she may exclude.

3. Compute the taxable income for 2021 for Emily (age 40) on the basis of the following information. Her filing status is single. Salary $85,000 Interest income from bonds issued by Xerox 1,100 Alimony payments received (divorce occurred in 2014) 6,000 Contribution to traditional IRA 6,000 Gift from parents 25,000 Short-term capital gain from stock investment 2,500 Amount lost in football office pool (gambling loss) 500 4. Compute the standard deduction allowed for 2021 for the following taxpayers. a. Rebecca Green is 67 and legally blind. She qualifies as a head of household. b. Jeffrey and Donna Dirk are both 72 and file a joint return for 2021. Donna is blind. c. Sue, age 74, has no earned income and is claimed as a dependent on her son’s tax return.

5. In each of the following independent situations, determine the taxpayer’s filing status and the number of dependents the taxpayer is allowed to claim. a. Hamish’s spouse died last year, and Hamish has not remarried. Hamish provides more than half of the support of his father Reggie, age 78, who lives in a nursing home and had interest income this year of $2,500. b. Irene is married but has not seen her spouse since February. She provides more than half of the support of her spouse’s 18 -year-old child Dolores, who lives with Irene. Dolores earned $5,400 this year. c. Edith and her spouse provide more than half of the support of their 35-year-old son, Slim. Slim is a full-time college student who earned $5,500 over the summer in part- time work. d. Frank is single and provides more than half of the support of his 17-year-old brother, Bill. Bill earned $3,000 and did not live with Frank. e. Charlie intended to file a joint return with his spouse, Sally. However, Sally died in December. Charlie has not remarried. 6. Indicate the filing status of Sandy for 2022, 2023, 2024, and 2025 assuming her husband died in 2022 and Sandy has been the sole support of her son since that time.

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