Indchapter.docVIP

 PAGE \* MERGEFORMAT 41 Copyright ? 2013 Pearson Education, Inc. publishing as Prentice Hall 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,