Question

The exemption amount is used to determine which of the following?

a.Whether certain taxpayers are spouses

b.The tax rate applicable to the taxpayer's dependency exemption

c.Whether married taxpayers filing separate returns must claim dependents

d.The tax rate applicable to the taxpayer's personal exemption

e.Whether certain taxpayers are dependents

During 2020, Hayden had the following transactions:

Salary	$92,000
Accident insurance proceeds	4,000
Inheritance from grandparent	50,000
Contribution to traditional IRA	6,000
Capital losses	7,000

Hayden's AGI is:

a.$79,000.

b.$82,000.

c.$83,000.

d.$136,000.

e.$125,000.

The kiddie tax applies to the unearned income of dependent children.

True

False

A strategy taxpayers can use to maximize the use of the standard deduction is to:

a.Spread charitable contributions across several years.

b.Employ a child in a business.

c.Purchase stock in a child's name.

d.Use the cash method to concentrate multiple years' deductions, such as charitable contributions, in a single year.

e.Reduce the amount of charitable contributions made in the year.

Answer 1

The Exemption amount is used to determine which of the following:

Option e) Whether certain taxpayer's are dependents

Explanation: If the some individuals are claimed as a dependents by any individuals payin tax , then the exemption amount plays the role in identifying if such person has claimed his own exemptions anywhere else or not.

Hayden's AGI : Option C) $83,000

Salary = $92,000

Accidental Insurance proceeds = $4,000

Contribution to traditional IRA = ($6,000)

Capital losses = ($7,000)

TOTAL AGI = $83,000

( the inheritance is a nontaxable exclusion)

The kiddie tax applies to the unearned income of dependent children . TRUE

Explanation: Kiddie tax applies to the unearned income of dependent children so that the parents do not avoid paying taxes by transferring large gifts of stock.

A strategy taxpayers can use to maximize the use of standard deductions is to :

Option b) Employ a child in a business

Explanation: By employing the child in business we can deduct the wages as a business expense on our tax return and we can pay the child upto $12,400 (maximum amount of standard deductions allowed for single person in 2020) without incurring income taxes and other employment taxes.