FEDERAL INCOME TAX 1 EXAM 1, 2017 FALL 1. Jack is an 18 year old student at the university. He goes to school full time and is fully supported by his parents. In each of the following cases below, compute Jack's taxable income and determine if it is taxed at his rate or at his parent's rate. Determine the amount of each. A. Jack has earned income of $6,000. B. Jack has earned income of $4,000 and investment income of $3,000. C. Jack has investment income of $5,000. D. Jack has investment income of $2,000. 2. In each of the following cases determine the best filing status and the number of dependents the filer is entitled to A. Mr. And Mrs Jones have one daughter who lives with them and whom they fully support. During the current year, Mr Smith dies. B. The next year, Mrs. Jones still supports her daughter who lives with her. C Mr. Jenkins is single and supports his father who lives in a nursing home. D. Mr. Smith is an abandoned spouse who lives alone. 3. Alice, a cash-basis taxpayer, owns an office building. On April 1, 2016, office 201 was leased for one year. A $1,800 security deposit was received which the contract states will be used as the last month's rent. On May 31, 2016, the tenant in office 301 paid Alice $2,000 to cancel a lease ending on January 01, 2017. The tenant in office 201 received permission to install wall-to-wall carpeting in the office at a cost to the tenant of $3,000. The carpeting will remain when the tenant vacates the office. How much income must Alice include in rental income? 4. Based on the following 2016 events, how much should Sue include in gross income on her federal income tax return? Jury awarded punitive damages $20,000 Money borrowed from a bank $10,000 Increase in value in investment $ 5,000 Inheritance $90,000 Interest on municipal bonds $ 2,000 Interest on savings account $ 20 Cash dividend on common stocks $1,000 20% stock dividends on 100 shares of $5 a share stock ? Gift for helping friend paint house $ 2,000 Prize on a quiz show $10,000 5. Compute the annual taxable income for each of the following annuities. A. John is 65 years old. On January 1, 2016, he paid $1,000,000 for a single life annuity which will pay him $5,000 per month for the rest of his life. B. John and his wife, Anne are both 65 years old. On January 1, 2016 they paid $1,000,000 for an annuity which will pay $5,000 a month for as long as either of them lives. C. John and his wife are ages 65 and 64 respectively. On January 1, 2016, they pay $1,000,000 for a policy which will pay $5,000 a month for as long as they both live. It will then pay the survivor $3,000 until the death of the second spouse. 6. Compute the amount os social security subject to federal income tax and taxable income in each of the following cases. The standard deduction is selected in each case. A. Jane is a 66 year old single woman who receives $8,000 per year in social security. She has a part- time job which pays her $12,000 a year. She receives $4,000 a year in dividends. B. Jane is a 66 year old single woman who receives $8,000 per year in social security. She has a job which pays her $23,000 a year. C. Jane and Jim are both 66 years old. They are married filing jointly. They receive $18,000 a year in social security. They both work part time and together earn $20,000. They have $2,000 in municipal bond interest. Answer any 5 problems. SHOW ALL CALCULATIONS. DEFEND YOUR ANSWERS
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