Ind.chapter 2.docVIP

Prentice Halls Federal Taxation 2013 Individuals, 26e Pope Chapter I2 Determination of Tax 1 Gross income is income from whatever source derived less exclusions. Answer: TRUE Page Ref.: I:2-3 Objective: 1 2 Although exclusions are usually not reported on an individuals income tax return, interest income on state and local government bonds must be reported on the tax return. Answer: TRUE Explanation: See Additional Comment, p. I2-3. Page Ref.: I:2-3 Objective: 1 3 Generally, deductions for not from adjusted gross income are personal expenses specifically allowed by tax law. Answer: FALSE Explanation: Personal expenses, if deductible, are generally from AGI deductions. Page Ref.: I:2-4 Objective: 1 4 Generally, itemized deductions are personal expenses specifically allowed by the tax law. Answer: TRUE Page Ref.: I:2-4 Objective: 1 5 Taxpayers have the choice of claiming either the personal and dependency exemption or the standard deduction. Answer: FALSE Explanation: Taxpayers claim the greater of itemized deductions or the standard deduction. In addition, taxpayers will reduce taxable income by personal and dependency exemptions. Page Ref.: I:2-5 Objective: 1 6 Refundable tax credits are allowed to reduce or totally eliminate a taxpayers tax liability but may not reduce the liability below zero. Answer: FALSE Explanation: Refundable tax credits may reduce the tax liability to zero and, if some credit still remains, are refundable or paid by the government to the taxpayer. Page Ref.: I:2-6 Objective: 1 7 Nonrefundable tax credits are allowed to reduce or totally eliminate a taxpayers tax liability but may not reduce the liability below zero. Answer: TRUE Page Ref.: I:2-6 Objective: 1 8 The standard deduction is the maximum amount of itemized deductions which may be claimed by a taxpayer, and is based on an individuals filing status, age, and vision. Answer: FALSE Explanation: The standard deduction, set by Congress, is not dire