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CHAPTER 9: INDIVIDUALS AS THE TAXPAYER
1. Under the Federal income tax formula for individuals, a choice must be made between claiming deductions for
AGI and itemized deductions.
a. True
b. False

ANSWER: False
RATIONALE: Even though a taxpayer chooses to itemize, deductions for AGI can be claimed.

2. Under the Federal income tax formula for individuals, the determination of adjusted gross income (AGI)
precedes that of taxable income (TI).
a. True
b. False

ANSWER: True
RATIONALE: The determination of AGI precedes (not follows) the determination of taxable income (TI).

3. Under the income tax formula, a taxpayer must choose between deductions for AGI and the standard deduction.
a. True
b. False

ANSWER: False
RATIONALE: The choice is between deductions from AGI and the standard deduction.

4. After Ellie moves out of the apartment she had rented as her personal residence, she recovers her damage deposit
of $1,000. The $1,000 is not income to Ellie.
a. True
b. False

ANSWER: True
RATIONALE: The $1,000 is a nontaxable return of capital.

5. An “above the line” deduction refers to a deduction for AGI.

a. True
b. False

ANSWER: True

6. Because they appear on page 1 of Form 1040, itemized deductions are also referred to as “page 1 deductions.”
a. True
b. False

ANSWER: False
RATIONALE: What is described are deductions for AGI. Itemized deductions are also known as deductions
from AGI and appear on page 2 of Form 1040.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 9: Individuals as the Taxpayer

7. A decrease in a taxpayer’s AGI could increase the amount of medical expenses that can be deducted.
a. True
b. False

ANSWER: True
RATIONALE: A decrease in AGI may increase the medical expense deduction due to the 10% (or 7.5%) floor
imposed.

8. An increase in a taxpayer’s AGI could decrease the amount of charitable contribution that can be claimed.
a. True
b. False

ANSWER: False
RATIONALE: An increase in AGI increases the allowable charitable contribution that can be claimed due to
the 50% ceiling imposed.

9. Adjusted gross income (AGI) appears at the bottom of page 1 and at the top of page 2 of Form 1040.
a. True
b. False

ANSWER: True

10. All exclusions from gross income are reported on Form 1040.
a. True
b. False

ANSWER: False
RATIONALE: Gifts and inheritances are two major exclusions not reported on Form 1040.

11. The filing status of a taxpayer (e.g., single, head of household) must be identified before the applicable standard
deduction is determined.
a. True
b. False

ANSWER: True
RATIONALE: The filing status is relevant in determining the amount of the standard deduction available.

12. Lee, a citizen of Korea, is a resident of the U.S. Any rent income Lee receives from land he owns in Korea is not
subject to the U.S. income tax.
a. True
b. False

ANSWER: False
RATIONALE: Under the global system of taxation followed by the U.S., foreign-sourced income is subject to
tax. Although Lee is not a citizen, he is a resident of the U.S.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 9: Individuals as the Taxpayer

13. The additional standard deduction for age and blindness is greater for married taxpayers than for single taxpayers.
a. True
b. False

ANSWER: False
RATIONALE: For 2014, compare $1,550 (single) with $1,200 (married).

14. The basic and additional standard deductions both are subject to an annual adjustment for inflation.
a. True
b. False

ANSWER: True
RATIONALE: The inflation adjustment is made annually to both the basic standard deduction and the additional
standard deduction.

15. Many taxpayers who previously itemized will start claiming the standard deduction when they purchase a home.
a. True
b. False

ANSWER: False
RATIONALE: Just the opposite is the case. The deduction for property taxes and mortgage interest expense
usually makes itemizing preferable to the standard deduction.

16. Once they reach age 65, many taxpayers will switch from itemizing their deductions from AGI and start claiming
the standard deduction.
a. True
b. False

ANSWER: True
RATIONALE: Not only is the additional standard deduction now available but also the mortgage interest
deduction on the personal residence has declined (or disappeared).

17. Claude’s deductions from AGI exceed the standard deduction allowed for 2014. Under these circumstances,
Claude cannot claim the standard deduction.
a. True
b. False

ANSWER: False
RATIONALE: The choice is elective. Claude may wish to avoid the time and trouble of completing Schedule A.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 9: Individuals as the Taxpayer

18. As opposed to itemizing deductions from AGI, the majority of individual taxpayers choose the standard deduction.
a. True
b. False

ANSWER: True
RATIONALE: Approximately two-thirds do so.

19. Howard, age 82, dies on January 2, 2014. On Howard’s final income tax return, the full amount of the basic and
additional standard deductions will be allowed even though Howard lived for only 2 days during the year.
a. True
b. False

ANSWER: True

20. In 2014, Ed is 66 and single. If he has itemized deductions of $7,400, he should not claim the standard deduction
alternative.
a. True
b. False

ANSWER: False
RATIONALE: The standard deduction yields $7,750 ($6,200 + $1,550).

21. Jason and Peg are married and file a joint return. Both are over 65 years of age and Jason is blind. Their standard
deduction for 2014 is $16,000 ($12,400 + $1,200 + $1,200 + $1,200).
a. True
b. False

ANSWER: True

22. Derek, age 46, is a surviving spouse. If he has itemized deductions of $12,700 for 2014, Derek should not claim the
standard deduction.
a. True
b. False

ANSWER: True
RATIONALE: The standard deduction would only provide $12,400.

23. Buddy and Hazel are ages 72 and 71 and file a joint return. If they have itemized deductions of $14,600 for 2014,
they should not claim the standard deduction.
a. True
b. False

ANSWER: False
RATIONALE: The standard deduction provides $14,800 ($12,400 + $1,200 + $1,200).

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 9: Individuals as the Taxpayer

24. Clara, age 68, claims head of household filing status. If she has itemized deductions of $10,250 for 2014, she
should not claim the standard deduction.
a. True
b. False

ANSWER: False
RATIONALE: The standard deduction yields $10,650 ($9,100 + $1,550).

25. Monique is a resident of the U.S. and a citizen of France. If she files a U.S. income tax return, Monique cannot
claim the standard deduction.
a. True
b. False

ANSWER: False
RATIONALE: Either U.S. citizenship or residency will suffice in order to claim the standard deduction. Monique is
not a nonresident alien.

26. Dan and Donna are husband and wife and file separate returns for the year. If Dan itemizes his deductions from
AGI, Donna cannot claim the standard deduction.
a. True
b. False

ANSWER: True
RATIONALE: If Dan itemizes, Donna must itemize.

27. Benjamin, age 16, is claimed as a dependent by his parents. During 2014, he earned $700 at a car wash. Benjamin’s
standard deduction is $1,350 ($1,000 + $350).
a. True
b. False

ANSWER: False
RATIONALE: His standard deduction is the greater of $1,000 or $1,050 ($700 + $350).

28. Debby, age 18, is claimed as a dependent by her mother. During 2014, she earned $1,100 in interest income on a
savings account. Debby’s standard deduction is $1,450 ($1,100 + $350).
a. True
b. False

ANSWER: False
RATIONALE: Debby’s standard deduction is the minimum allowed of $1,000.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 9: Individuals as the Taxpayer

29. Katrina, age 16, is claimed as a dependent by her parents. During 2014, she earned $5,600 as a checker at a
grocery store. Her standard deduction is $5,950 ($5,600 earned income + $350).
a. True
b. False

ANSWER: True
RATIONALE: Her standard deduction cannot exceed the regular standard deduction available to single persons
(or $6,200 for 2014).

30. A dependent cannot claim a personal exemption on his or her own return.
a. True
b. False

ANSWER: True

31. When separate income tax returns are filed by married taxpayers, one spouse cannot claim the other spouse as an
exemption.
a. True
b. False

ANSWER: False
RATIONALE: An exemption is allowed if the spouse has no gross income and is not claimed as a dependent by
another.

32. Butch and Minerva are divorced in December of 2014. Since they were married for more than one-half of the year,
they are considered as married for 2014.
a. True
b. False

ANSWER: False
RATIONALE: They must be married at the end of the year (unless one spouse dies) in order to be considered
married.

33. For the year a spouse dies, the surviving spouse is considered married for the entire year for income tax purposes.
a. True
b. False

ANSWER: True

34. In determining whether the gross income test is met for dependency exemption purposes, only the taxable portion
of a scholarship is considered.
a. True
b. False

ANSWER: True
RATIONALE: For the support test, all of the scholarship is disregarded. Scholarships are treated differently for
purposes of the gross income test.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 9: Individuals as the Taxpayer

35. Albert buys his mother a TV. For purposes of meeting the support test, Albert cannot include the cost of the TV.
a. True
b. False

ANSWER: False
RATIONALE: Capital expenditures can be considered in determining support. It is assumed that the TV is largely
for the mother’s use.

36. If an individual does not spend funds that have been received from another source (e.g., interest on municipal
bonds), the unexpended amounts are not considered for purposes of the support test.
a. True
b. False

ANSWER: True
RATIONALE: The funds are counted only if used for support purposes.

37. Using borrowed funds from a mortgage on her home, Leah provides 52% of her own support, while her sons
furnished the rest. Leah can be claimed as a dependent under a multiple support agreement.
a. True
b. False

ANSWER: False
RATIONALE: The sons do not provide more than half of their mother’s support. In this situation, the mother is
self-supporting.

38. Roy and Linda were divorced in 2013. The divorce decree awards custody of their children to Linda but is silent as
to who is entitled to claim them as dependents. If Roy furnished more than half of their support, he can claim them
as dependents in 2014.
a. True
b. False

ANSWER: False
RATIONALE: Not unless Linda consents.

39. In 2014, Hal furnishes more than half of the support of his ex-wife and her father, both of whom live with him.
The divorce occurred in 2013. Hal may claim the father-in-law and the ex-wife as dependents.
a. True
b. False

ANSWER: True
RATIONALE: The father-in-law meets the relationship test, but the ex-wife does not. Except in the year of
divorce, an ex-wife can be a dependent under the member of the household test.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 9: Individuals as the Taxpayer

40. After her divorce, Hope continues to support her ex-husband’s sister, Cindy, who does not live with her. Hope can
claim Cindy as a dependent.
a. True
b. False

ANSWER: True
RATIONALE: For purposes of the relationship test, divorce does not change “in­law” status.

41. Darren, age 20 and not disabled, earns $4,000 during 2014. Darren’s parents cannot claim him as a dependent
unless he is a full-time student.
a. True
b. False

ANSWER: True
RATIONALE: Being age 20, Darren cannot be a qualifying child unless he is a full-time student. He cannot be
a qualifying relative, since he does not meet the gross income test.

42. Lucas, age 17 and single, earns $6,000 during 2014. Lucas’s parents cannot claim him as a dependent if he does not
live with them.
a. True
b. False

ANSWER: True
RATIONALE: Lucas does not meet the definition of a qualifying child if the abode test is failed. Lucas also
fails the gross income test for a qualifying relative.

43. Sarah furnishes more than 50% of the support of her son and daughter-in-law who live with her. If the son and
daughter-in-law file a joint return, Sarah cannot claim them as dependents.
a. True
b. False

ANSWER: False
RATIONALE: If certain conditions are satisfied (e.g., they did not have to file but did so to obtain a refund), the
son and daughter-in-law can qualify as Sarah’s dependents.

44. Kim, a resident of Oregon, supports his parents who are residents of Canada but citizens of Korea. Kim can claim
his parents as dependents.
a. True
b. False

ANSWER: True
RATIONALE: The parents are residents of Canada.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 9: Individuals as the Taxpayer

45. Stealth taxes are directed at lower income taxpayers.

a. True
b. False

ANSWER: False
RATIONALE: Stealth taxes do not begin until taxpayers reach significant income levels.

46. In determining the filing requirement based on gross income received, both additional standard deductions (i.e., age
and blindness) are taken into account.
a. True
b. False

ANSWER: False
RATIONALE: The additional standard deduction for blindness is not taken into account.

47. For dependents who have income, special filing requirements apply.
a. True
b. False

ANSWER: True
RATIONALE: The regular filing requirements do not apply in this situation.

48. A taxpayer who itemizes must use Form 1040, and cannot use Form 1040EZ or Form 1040A.
a. True
b. False

ANSWER: True

49. An individual taxpayer uses a fiscal year March 1-February 28. The due date of this taxpayer’s Federal income tax
return is May 15 of each tax year.
a. True
b. False

ANSWER: False
RATIONALE: The tax return is due on or before the fifteenth day of the fourth month following the end of the
fiscal year. Here, the due date is June 15.

50. Married taxpayers who file a joint return cannot later (i.e., after the filing due date) switch to separate returns for
that year.
a. True
b. False

ANSWER: True

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 9: Individuals as the Taxpayer

51. Married taxpayers who file separately cannot later (i.e., after the due date for filing) change to a joint return.
a. True
b. False

ANSWER: False
RATIONALE: Such a change is allowed.

52. Surviving spouse filing status begins in the year in which the deceased spouse died.
a. True
b. False

ANSWER: False
RATIONALE: Surviving spouse filing status begins in the year following the year of death.

53. In January 2014, Jake’s wife dies and he does not remarry. For tax year 2014, Jake may not be able to use
the filing status available to married persons filing joint returns.
a. True
b. False

ANSWER: True
RATIONALE: If the executor of his wife’s estate does not agree to filing a joint return, Jake’s only option is to file
using married, filing separate status.

54. For tax purposes, married persons filing separate returns are treated the same as single taxpayers.
a. True
b. False

ANSWER: False
RATIONALE: Single taxpayers can enjoy many tax benefits that are unavailable to married persons filing
separately—e.g., earned income credit, credit for child and dependent care expenses, deduction
for interest paid on student loans.

55. Katelyn is divorced and maintains a household in which she and her daughter, Crissa, live. Crissa, age 22, earns
$11,000 during 2014 as a model. Katelyn does not qualify for head of household filing status.
a. True
b. False

ANSWER: True
RATIONALE: Crissa is not Katelyn’s dependent. She fails the age test for qualifying child purposes and the gross
income test for the qualifying relative category.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 9: Individuals as the Taxpayer

56. Ed is divorced and maintains a home in which he and a dependent friend live. Ed does not qualify for head of
household filing status.
a. True
b. False

ANSWER: True
RATIONALE: To be head of household, the dependent involved must meet the relationship test. This is not the
case with a friend.

57. In terms of income tax consequences, abandoned spouses are treated the same way as married persons filing
separate returns.
a. True
b. False

ANSWER: False
RATIONALE: An abandoned spouse is treated as a single taxpayer. Consequently, an abandoned spouse
qualifies for head of household filing status.

58. Since an abandoned spouse is treated as not married and has one or more dependent children, he or she qualifies
for the standard deduction available to head of household.
a. True
b. False

ANSWER: True
RATIONALE: One of the advantages of being an abandoned spouse is head of household filing status.

59. Currently, the top income tax rate in effect is not the highest it has ever been.
a. True
b. False

ANSWER: True
RATIONALE: The income tax rates in effect in 1944-1945 ranged from 23% to 94%.

60. In terms of timing as to any one year, the Tax Tables are available before the Tax Rate Schedules.
a. True
b. False

ANSWER: False
RATIONALE: Just the reverse is the case.

61. The kiddie tax does not apply to a child whose earned income is more than one-half of his or her support.
a. True
b. False

ANSWER: True

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 9: Individuals as the Taxpayer

62. Once a child reaches age 19, the kiddie tax no longer applies.
a. True
b. False

ANSWER: False
RATIONALE: The kiddie tax does apply if the child is a full-time student under age 24.

63. When the kiddie tax applies and the parents are divorced, the applicable parent (for determining the parental tax) is
the one with the greater taxable income.
a. True
b. False

ANSWER: False
RATIONALE: The applicable parent is the one who has custody.

64. When the kiddie tax applies, the child need not file an income tax return because the child’s income will be reported
on the parents’ return.
a. True
b. False

ANSWER: False
RATIONALE: The child need not file only if the parental election (if available) is made and the parent picks up all
of the child’s income.

65. A child who has unearned income of $2,000 or less cannot be subject to the kiddie tax.
a. True
b. False

ANSWER: True

66. A child who is married cannot be subject to the kiddie tax.

a. True
b. False

ANSWER: False
RATIONALE: If he or she does not file a joint return, such child is not exempt from the kiddie tax.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 9: Individuals as the Taxpayer

67. In terms of the tax formula applicable to individual taxpayers, which, if any, of the following statements is correct?
a. In arriving at taxable income, a taxpayer must choose between the standard deduction and deductions from AGI.
b. In arriving at AGI, personal and dependency exemptions must be subtracted from gross income.
c. In arriving at taxable income, a taxpayer must choose between the standard deduction and claiming
personal and dependency exemptions.
d. The formula does not apply if a taxpayer elects to claim the standard deduction.
e. None of the above.

ANSWER: a
RATIONALE: The standard deduction is not an alternative; it is a component of the tax formula (choice d.).
Personal and dependency exemptions are subtracted after AGI is determined (choice b.). The
choice is between the standard deduction and deductions from AGI (choice a.).

68. In terms of the tax formula applicable to individual taxpayers, which, if any, of the following statements is correct?
a. In arriving at AGI, a taxpayer must elect between claiming deductions for AGI and deductions from AGI.
b. In arriving at taxable income, a taxpayer must elect between claiming deductions for AGI and deductions from
AGI.
c. If a taxpayer has deductions for AGI, the standard deduction is not available.
d. In arriving at taxable income, a taxpayer must elect between deductions for AGI and the standard deduction.
e. None of the above.

ANSWER: e
RATIONALE: AGI is computed by claiming deductions for and no election is required (choice a.). In arriving at
taxable income, deductions for AGI are allowed (choice b.) and the election is between
deductions from AGI and the standard deduction (choices c. and d.).

69. Regarding the tax formula and its relationship to Form 1040, which, if any, of the following statements is correct?
a. Most exclusions from gross income are reported on page 2 of Form 1040.
b. An “above the line deduction” refers to a deduction from AGI.
c. A “page 1 deduction” refers to a deduction for AGI.
d. The taxable income (TI) amount appears both at the bottom of page 1 and at the top of page 2 of Form
1040.
e. None of the above.

ANSWER: c
RATIONALE: Most exclusions are not reported on Form 1040, but those that are appear on page 1—not on page
2 (choice a.). A “page 1 deduction” as well as an “above the line deduction” are deductions for
AGI (choices b. and c.). AGI, not TI, is at the bottom of page 1 and the top of page 2 of Form
1040 (choice d.).

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 9: Individuals as the Taxpayer

70. Which of the following items, if any, is deductible?

a. Parking expenses incurred in connection with jury duty—taxpayer is a dentist.
b. Substantiated gambling losses (not in excess of gambling winnings) from state lottery.
c. Contributions to mayor’s reelection campaign.
d. Speeding ticket incurred while on business.
e. Premiums paid on personal life insurance policy.

ANSWER: b
RATIONALE: All other choices are not deductible —either as dfor or dfrom AGI.

71. Which, if any, of the following is a deduction for AGI?

a. Contributions to a traditional Individual Retirement Account.
b. Child support payments.
c. Funeral expenses.
d. Loss on the sale of a personal residence.
e. Medical expenses.

ANSWER: a
RATIONALE: IRA contributions (choice a.) are deductions for AGI. Child support payments (choice b.),
funeral expenses (choice c.), and personal capital losses (choice d.) are nondeductible items.
Medical expenses are deductions from AGI.

72. Which, if any, of the following is a deduction for AGI?

a. State and local sales taxes.
b. Interest on home mortgage.
c. Charitable contributions.
d. Unreimbursed moving expenses of an employee.
e. None of the above.

ANSWER: d
RATIONALE: All other items (choices a., b., and c.) are deductions from AGI.

73. Which, if any, of the statements regarding the standard deduction is correct?
a. Some taxpayers may qualify for two types of standard deductions.
b. Not available to taxpayers who choose to deduct their personal and dependency exemptions.
c. May be taken as a for AGI deduction.
d. The basic standard deduction is indexed for inflation but the additional standard deduction is not.
e. None of the above.

ANSWER: a
RATIONALE: An example of two additional standard deductions would be a taxpayer who is age 65 (or older) and
blind (choice a.). Both the basic and the additional standard deductions are subject to indexation
(choice d.). Personal and dependency exemptions are deductible in any event (choice b.). The
standard deductions are in lieu of deductions from AGI—not for AGI (choice c.).

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 9: Individuals as the Taxpayer

74. Which, if any, of the following statements relating to the standard deduction is correct?
a. If a taxpayer dies during the year, his (or her) standard deduction must be prorated.
b. If a taxpayer is claimed as a dependent of another, his (or her) additional standard deduction is allowed in full
(i.e., no adjustment is necessary).
c. If spouses file separate returns, both spouses must claim the standard deduction (rather than itemize their
deductions from AGI).
d. If a taxpayer is claimed as a dependent of another, no basic standard deduction is allowed.
e. None of the above.

ANSWER: b
RATIONALE: In the case of death, no apportionment is required and the full standard deduction is allowed
(choice a.). If married taxpayers file separate returns and one spouse itemizes, the other spouse
must also itemize.
However, there is no requirement that they each claim the standard deduction—although they may
do so (choice c.). A basic standard deduction is allowed for dependents although its
determination is subject to special rules (choice d.).

75. During 2014, Marvin had the following transactions:

Salary $50,000
Bank loan (proceeds used to buy personal auto) 10,000
Alimony paid 12,000
Child support paid 6,000
Gift from aunt 20,000

Marvin’s AGI is:

a. $32,000.
b. $38,000.
c. $44,000.
d. $56,000.
e. $64,000.

ANSWER: b
RATIONALE: $50,000 (salary) – $12,000 (alimony) = $38,000. The gift is an exclusion while the child support is
nondeductible. Amounts borrowed are not income.

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