Question

Advanced Scenario 5:

Fran Emerson Interview Notes • Fran’s husband died in March 2017. Fran filed a joint return with her husband for 2017. She has not remarried. • Fran provided the entire cost of maintaining the household and all the support for her children, Meredith and Oliver, in 2018. • Fran’s older brother, Howard, lives with her and is permanently and totally disabled. He received disability income which he used to provide more than half of his own support. • Oliver attended day care while Fran worked. • In September 2018, Fran’s daughter, Meredith, enrolled in college to pursue a bachelor’s degree. She had no previous post-secondary education. Yuma College is a qualified educational institution. • Meredith does not have a felony drug conviction. • Fran brought a Form 1098-T and an account statement from the college. Meredith’s purchases at the college bookstore were for course-related books. • The terms of Meredith’s scholarship require that it be used to pay for tuition. • Fran took a distribution from her IRA and used all of the distribution to pay for some of Meredith’s education expenses. All her IRA contributions were deductible in the year she made them. • Fran received a Form 1099-C for cancelled credit card debt. Using the insolvency determination worksheet in Publication 4012, you helped Fran determine the value of her assets exceeded her liabilities and that she was solvent at the time the credit card debt was cancelled. • Fran did not have minimum essential healthcare coverage (MEC) all year and does not qualify for any exemption. Meredith, Oliver, and Howard each had MEC all year.

Advanced Scenario 5: Test

Questions 10. Which allowable filing status is most advantageous to Fran? a. Qualifying Widow b. Single c. Married Filing Separately d. Head of Household

11. Howard qualifies Fran for which of the following: a. Credit for other dependents b. Child tax credit c. Earned income credit d. All of the above

12. What is the amount of Fran’s child and dependent care credit shown on Form 2441, Child and Dependent Care Expenses? a. $1,591 b. $720 c. $660 d. $690

13. What is the total amount of qualified educational expenses used in the calculation of Fran’s American opportunity credit? $__________.

14. What is the amount of Fran’s individual shared responsibility payment? a. $0 b. $695 c. $1,295 d. $1,390

15. How much is Fran’s federal withholding? a. $0 b. $320 c. $2,200 d. $2,520

16. Cancelled debt from Form 1099-C, Cancellation of Debt, is reported on Fran’s tax return as: a. Wages b. Other income c. Capital gain d. It is not reported on the return

17. Which exception can Fran use to avoid the 10% additional tax on the early distribution from her IRA on Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts? a. She does not qualify for an exception. b. Distribution made for higher education expenses. c. Distribution made for purchase of a first home. d. Distribution due to total and permanent disability.

Answer 1

10. Which allowable filing status is most advantageous to Fran?

Ans. Qualifying Widow

Interpretation: Qualifying Widow helps you to retain the benefits of the Married Filing Jointly status for 2 years even after Fran's spouse's death. It entitles Fran to use the Married Filing Jointly tax rates and the highest standard deduction amount.

11. Howard qualifies Fran for which of the following:

Ans: All of the above

Interpretation: Fran can qualify as earned income to claim the Earned Income Tax Credit or EITC and can claim a relative of any age as a qualifying child as Howard is totally and permanently disabled and he fits for all other EITC requirements. So, Fran can have Credit for other dependents, Child tax credit and Earned income credit.

12. What is the amount of Fran’s child and dependent care credit shown on Form 2441, Child and Dependent Care Expenses?

Ans: $660

13. What is the total amount of qualified educational expenses used in the calculation of Fran’s American opportunity credit?

Ans: $ 600

14. What is the amount of Fran’s individual shared responsibility payment?

Ans: $0

15. How much is Fran’s federal withholding?

Ans: $320

16. Cancelled debt from Form 1099-C, Cancellation of Debt, is reported on Fran’s tax return as:

Ans: Other Income as it is considered taxable income

17. Which exception can Fran use to avoid the 10% additional tax on the early distribution from her IRA on Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts?

Ans: Distribution made for purchase of a first home as she has already used all other plans.