Tax Dependency and Income: Key Concepts
Qualifying Child and Relative Tests
18) Which of the following relationships does NOT pass the relationship test for a qualifying child? C) Cousin.
19) Anna is a 21-year-old full-time college student (she plans on returning home at the end of the school year). Her total support for the year was $34,000 (including $8,000 of tuition). Anna covered $12,000 of her support costs out of her own pocket (from savings; she did not work), and she received an $8,000 scholarship that covered all of her tuition costs. Which of the following statements regarding who is allowed to claim Anna as an exemption is true? B) Even if Anna’s grandparents provided the remaining $14,000 of support for Anna ($34,000 minus $12,000 minus $8,000), they cannot claim Anna as a dependent.
20) Char and Russ Dasrup have one daughter, Siera, who is 16 years old. In November of last year, the Dasrups took in Siera’s 16-year-old friend, Angela, who has lived with them ever since. The Dasrups have not legally adopted Angela, but Siera often refers to Angela as “her sister.” The Dasrups provide all of the support for both girls, neither girl receives any income during the year, and both girls live at the Dasrups’ residence. Which of the following statements is true regarding who Char and Russ may claim as dependents for the current year? C) They may claim Siera as a dependent qualifying child, and they may claim Angela as a dependent qualifying relative.
21) Katy has one child, Dustin, who is 18 years old at the end of the year. Dustin lived at home for three months during the year before leaving home to work full-time in another city. During the year, Dustin earned $15,000. Katy provided more than half of Dustin’s support for the year. Which of the following statements regarding whether Katy may claim Dustin as a dependent for the current year is accurate? D) No, Dustin fails the gross income test for a qualifying relative.
Head of Household Filing Status
22) Which of the following statements about a qualifying person for head of household filing status is true? D) A qualifying person must have a family relationship with the taxpayer in order for the qualifying person to qualify the taxpayer for head of household filing status.
23) Jane is unmarried and has no children but provides more than half of her mother’s financial support. Jane’s mother lives in an apartment across town and has a part-time job earning $5,000 a year. Which is the most advantageous filing status available to Jane? A) Single.
Income Recognition Rules
24) Sally is a cash-basis taxpayer and a member of the Valley Barter Club. This year, Sally provided 100 hours of sewing services to the barter club in exchange for two football playoff tickets. Which of the following is a true statement? C) Sally is taxed on the value of the football tickets even if she cannot attend the game.
25) Identify the rule that determines whether a taxpayer must include in income a refund of an amount deducted in a previous year: D) Tax benefit rule.
26) Identify the rule that states that income has been realized when a taxpayer receives the income and there are no restrictions on the taxpayer’s use of the income (e.g., no obligation to repay the amount): A) Claim of right.
27) Emily is a cash-basis taxpayer, and she was an especially productive salesperson last year. In December of last year, her supervisor told Emily she had earned a $5,000 bonus. However, Emily received the bonus check after year-end. Identify the principle that will determine when Emily is taxed on the bonus: B) Constructive receipt.
28) This year, Henry realized a gain on the sale of an antique car that he inherited from his uncle. The buyer has promised to pay Henry in installment payments over the next few years. Identify the principle that will determine when Henry should be taxed on the gain from the sale: D) Wherewithal to pay.
Annuity Income Calculation
29) George purchased a life annuity for $3,200 that will provide him $80 monthly payments for as long as he lives. Based on IRS tables, George’s life expectancy is 100 months. How much of the first $80 payment will George include in his gross income? C) $48