Solution Chapter 1 Income Tax Fundamentals

Solutions for Questions and Problems – Chapter 1

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SOLUTIONS FOR QUESTIONS AND PROBLEMS

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Chapter 1 – The Individual Income Tax Return

Solutions for Questions and Problems – Chapter 1

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CHAPTER 1 THE INDIVIDUAL INCOME TAX RETURN Group 1 - Multiple Choice Questions 1. 2. 3. 4. 5. (LO 1.1) (LO 1.2) (LO 1.3) (LO 1.3) $98,000 – $19,000 – $3,800 = $75,200 (LO 1.3) 6. C $5,950 + $3,800 = $9,750 (LO 1.4) Group 2 - Problems 1. a. Raising revenue to operate the government. b. Furthering economic goals such as reducing unemployment. c. Furthering social goals such as encouraging contributions to charities. (LO 1.1) 2. a. $36,500 = $41,000 + 500 – 5,000. b. $11,900, the greater of itemized deductions or the standard deduction of $11,900. c. $17,000 = $36,500 – 11,900 – (2 x $3,800). (LO 1.3) 3. a. $23,000. b. $5,950, the greater of total itemized deductions or the standard deduction amount. c. $13,250 = $23,000 – 5,950 – 3,800. (LO 1.3) 4. a. b. c. d. 5. – = – – = 6. a. b. c. d. $52,700 = $54,000 + 1,700 – 3,000 ($7,000 capital loss limited to $3,000) $5,950 $3,800 $42,950 = $52,700 – 5,950 – 3,800 (LO 1.3) Gross income Deductions for adjusted gross income Adjusted gross income Greater of itemized deductions or standard deduction Exemptions Taxable income (LO 1.3) $48,079 = $46,479 + 3,500 – 1,900. $11,900, the greater of itemized deductions or the standard deduction of $11,900. $28,579 = $48,079 – 11,900 – (2 x 3,800). $3,416 (Tax Table) (LO 1.3 and 1.5) D D A C B 7. 8. 9. 10. 11. 12. 13. 14. C E C C B B B E (LO 1.5) (LO 1.6) (LO 1.6) (LO 1.6) (LO 1.6) (LO 1.7) (LO 1.7) (LO 1.8) 15. A (LO 1.8) 16. E $25,000 = $275,000 – ($285,000 – $35,000) (LO 1.8) 17. C $45,000 = $48,000 – $3,000 (LO 1.8) 18. D (LO 1.10)

7. Adjusted gross income $17,400 Less: Itemized deductions –2,250 One exemption –3,800 Taxable income $11,350 Ulysses’ tax liability from the Tax Table is $1,271. (LO 1.3 and 1.5)

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Chapter 1 – The Individual Income Tax Return...