Chapter 04 Individual Income Tax Overview, Exemptions, and Filing Status

Discussion
Questions

1. [LO 1] How are realized income, gross
income, and taxable income similar, and how are they different?

2.
[LO 1] Are taxpayers required to
include all realized income in gross income?
Explain.

3.
[LO 1] All else being equal, should taxpayers prefer
to exclude income or defer it? Why?

4. [LO 1]
Why should a taxpayer be interested in the character of income received?

5. [LO 1]
Is it easier to describe what a capital asset is or what it is not? Explain.

6.
[LO 1] Are all capital gains
(gains on the sale or disposition of capital assets) taxed at the same
rate? Explain.

7.
[LO 1] Are taxpayers allowed to
deduct net capital losses (capital losses in excess of capital gains)? Explain.
8. [LO 1] Compare and contrast for
and fromAGI deductions. Why are for
AGI deductions likely more valuable to taxpayers than from AGI
deductions?

9. [LO 1] What is the difference between
gross income and adjusted gross income, and what is the difference between
adjusted gross income and taxable income?

10. [LO 1]
How do taxpayers determine whether they should deduct their itemized
deductions or utilize the standard deduction?

11. [LO
1]. Why are some deductions called
“above-the-line” deductions and others are called “below-the-line”
deductions? What is the “line”?

12. [LO 1] What is the
difference between a tax deduction and a tax credit? Is one more beneficial than the other? Explain.
13. [LO 1] What types of federal income-based
taxes, other than the regular income tax, might taxpayers be required to pay? In general terms, what is the tax base for
each of these other taxes on income?

14. [LO 1] Identify three ways taxpayers can
pay their income taxes to the government.
15. [LO
1] If a person is considered to be a
qualifying child or qualifying relative of a taxpayer, is the taxpayer automatically
entitled to claim a dependency exemption for the person?
16. [LO 2] Emily and Tony are recently married
college students. Can Emily qualify as
her parents’ dependent? Explain.

17. Compare
and contrast the relationship test requirements for a qualifying child with the
relationship requirements for a qualifying relative.
18. [LO 2] In general terms, what are the
differences in the rules for determining who is a qualifying child and who
qualifies as a dependent as a qualifying relative? Is it possible for someone to be a qualifying
child and a qualifying relative of the same taxpayer? Why or why not?
19. [LO 2] How do two taxpayers determine who
has priority to claim the dependency exemption for a qualifying child of both
taxpayers when neither taxpayer is a parent of the child (assume the child does
not qualify as a qualifying child for either parent)? How do parents determine who gets to deduct
the dependency exemption for a qualifying child of both parents when the
parents are divorced or file separate returns?

20. [LO 2]
Isabella provides 30% of the support for her father Hastings who lives
in an apartment by himself and has no gross income. Is it possible for Isabella
to claim a dependency exemption for her father?
Explain.
21. [LO
3] What requirements do an abandoned
spouse and qualifying widow or widower have in common?

22.
[LO 3]
True or False. For purposes of
determining head of household filing status, the taxpayer’s mother or father is
considered to be a qualifying person of the taxpayer (even if the mother or
father does not qualify as the taxpayer’s dependent) as long as the taxpayer
pays more than half the costs of maintaining the household of the mother or
father. Explain.

23. [LO 3] Is a qualifying relative always a qualifying
person for purposes of determining head of household filing status?

24. [LO
3] For tax purposes, why is the married filing jointly tax status generally
preferable to the married filing separately filing status? Why might a married taxpayer prefer not
to file a joint return with the taxpayer’s spouse?

25. [LO 3]
What does it mean to say that a married couple filing a joint tax return
has joint and several liability for the taxes associated with the return?