21. LO.4, 5 Comment on the availability of head-of-household filing status in each of the following independent situations.
a. Al lives alone but maintains the household of his parents. In July, the parents use their savings to purchase a Lexus automobile for $62,000.
b. Bree maintains a home in which she and her father live. The father then enters a nursing facility for treatment for a mental illness.
c. Chloe a single parent, maintains a home in which she and Dean, Chloe’s unmarried son, live. Dean, age 18, earns $5,000 from a part-time job.
d. Assume the same facts as in (c), except that Dean is age 19, not 18.
e. Chee is married and maintains a household in which he and his dependent stepson live.
f. Evie lives alone but maintains the household where her dependent daughter Zoe lives.
g. Frank maintains a household that includes Georgia, an unrelated friend who qualifies as his dependent.
22. LO.5 Several years ago, after a particularly fierce argument, Fran’s husband moved out and has not been heard from or seen since. Because Fran cannot locate her husband, she uses a “married, filing separate” income tax return. Comment on Fran’s Federal filing status.
23. LO.6 Jayden calculates his Federal income tax by using both the Tax Tables and the
Tax Rate Schedules. Because the Tax Rate Schedules yield a slightly lower tax liability, he plans to pay this amount.
a. Why is there a difference?
b. Is Jayden’s approach permissible?
24. LO.7 In connection with the application of the kiddie tax, comment on the following.
a. The child generates only earned income.
b. The child reports a modest amount of unearned income.
c. The child is age 20, not a student, and not disabled.
d. The child is married.
e. A parental election is made.
f. A parental election is made, and the married parents file separate returns.
25. LO.8 During the year, Hernando recorded the following transactions. How should
Hernando treat these transactions for income tax purposes?
• Gain on the sale of stock held as an investment for 10 months.
• Gain on the sale of land held as an investment for 4 years.
• Gain on the sale of a houseboat owned for 2 years and used for family vacations.
• Loss on the sale of a reconditioned motorcycle owned for 3 years and used for recreational purposes.
26. LO.8 Randy, Sarah, and Tori inherited equal shares in their grandmother’s art collection.
This year, they sold the collection to an art dealer. When they filed their tax returns, Randy’s tax rate on the gain was 28% while Sarah’s was 25% and Tori’s was zero.
How is this possible, when each of the grandchildren had the same amount of recognized gain?
27. LO.4, 5, 9 Marcie is divorced, and her married son, Jamie (age 25), and his wife,
Audrey (age 18), live with her. During the year, Jamie earned $4,800 from a part-time job and filed a joint return with Audrey to recover his withholdings. Audrey reports zero gross income.
Marcie can prove that she provided more than 50% of Jamie and Audrey’s support.
Marcie does not plan to claim Jamie as a dependent because Jamie earns too much gross income. She does not plan to claim Audrey as a dependent because Audrey signed the joint return with Jamie. In fact, Marcie plans to use single filing status, as none of the persons living in her household qualifies as her dependent.
Comment on Marcie’s intentions based on the following assumptions.
a. All parties live in Indiana (a common law state).
b. All parties live in California (a community property state).