Question

1.Which of the following statements concerning the exemption phaseout is true?

a.The phaseout applies only to taxpayers with a 39.6% marginal income tax rate.

b.The phaseout can reduce a taxpayer's exemption amount to zero.

c.The phaseout doesn't apply to taxpayers who use the standard deduction instead of electing to itemize deductions.

d.Statements A., B., and C. are false.

2.In 2016, Amanda earned $70,000 self-employment income. She was allowed a $4,945 above-the line deduction for her SE tax. Compute Amanda's maximum contribution to her profit-sharing Keogh plan.

a.$13,011

b.$12,022

c.$65,055

d.$53,000

3.This year, Mrs. Pike's compensation from her corporate employer consisted of $325,000 current salary and $75,000 unfunded deferred compensation payable upon her retirement at age 66. Which of the following statements is true?

a.This year, Mrs. Pike must include $400,000 in gross income, and her employer is allowed a $400,000 deduction.

b.This year, Mrs. Pike must include $325,000 in gross income, and her employer is allowed a $400,000 deduction.

c.This year, Mrs. Pike must include $400,000 in gross income, and her employer is allowed a $325,000 deduction.

d.This year, Mrs. Pike must include $325,000 in gross income, and her employer is allowed a $325,000 deduction.

4.Ruth Anne, a single taxpayer, reported $152,600 alternative minimum taxable income before any exemption on her 2016 Form 1040. Calculate Ruth Anne's AMT exemption.

a.$8,225

b.$45,675

c.$53,900

d.None of the above

5.Melissa, age 16, is claimed as a dependent on her parents' tax return. This year, Melissa earned $2,000 from babysitting and $1,280 interest income from a savings account. Compute Melissa's standard deduction.

$2,000

$2,350

$0

$1,050

Answer 1

Answer 1

a.

The phaseout reduces the value of each exemption by 2% for each $2500 of income that exceeds the income threshold. Hence it can reduce the exemption to zero.

Answer 2

C

70000-4945 = 65055

Answer 3

B. This year, Mrs. Pike must include $325,000 in gross income, and her employer is allowed a $400,000 deduction.

Answer 4

C. 53900

It begins to phaseout at $119700

Answer 5.

B. $2350

Standard deduction is limited to larger of:

I. 1050

II. Individual's earned income plus $350

But not more than regular standard deduction.

Here the deduction would be

1050 or (2000+350) which ever is higher

i. e. 2350.