Questions -

Q1) Computation of Taxable Income. The following information relates to Tom, a single tax-payer, age 18:

Salary $1,800

Interest Income 1,600

Itemized deductions 600

a. Compute Tom's taxable income assuming he is self-supporting.

b. Compute Tom's taxable income assuming he is a dependent of his parents.

Q2) Joint Versus Separate Returns. Hal attended school much of 2013, during which time he was supported by his parents. Hal married Ruth in December 2013. Hal graduated and commenced work in 2014. Ruth worked during 2013 and earned $18,000. Hal's only income was $1,100 of interest. Hal's parents are in the 28% tax bracket. Thus, claiming Hal as a dependent would save them $1,092 (0.28 X $3,900) of taxes.

a. Compute Hal and Ruth's gross tax if they file a joint return.

b. Compute Ruth's gross tax if she files a separate return in order to allow Hal's parents to claim him as a dependent.

c. Which alternative would be better for the family? In other words, will filing a joint return save Hal and Ruth more than $1,092?

Q3) Dependency Exemptions: Anna, age 65, who lives with her unmarried son, Mario, received $7,000, which was used for her support during the year. The sources of support were as follows:

Social Security benefits $1,500

Mario 2,600

Caroline, an unrelated friend 800

Doug, Anna's son 500

Elaine, Anna's sister 1,600

Total $7,000

a. Who is eligible to claim Anna as a dependent?

b. What must be done before Mario can claim the exemption?

c. Can anyone claim head-of-household status based on Anna's dependency exemption? Explain.

d. Can Mario claim an old age allowance for his mother? Explain.