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Tax Subject T3 - Taxable and Nontaxable Income

 

Income can be received in the form of money, property or services. It is usually received as employee wages, fringe benefits, bartering, thorough partnerships, corporations (including S corporations), and royalties. Other items of income are disability pensions, insurance proceeds, and welfare and other public benefits. Usually income that is taxable is income that is received in exchange of services. Others are specifically includable by law. In this tax topic you will learn about the different kinds of income and whether they are taxable or nontaxable.

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Student Instructions:

Print this page, work on the questions and then submit test by mailing the answer sheet or by completing quiz online.

Instructions to submit quiz online successfully: Step-by-Step check list

Answer Sheet            Quiz Online

Most forms are in Adobe Acrobat PDF format. Get Adobe ReaderYou will need Adobe Reader to view and print these forms. If you do not already have Adobe Reader installed on your computer, you may download the software for free.

 

Material needed to complete this assignment:

 

Please note: Form 1040 Instructions (Form 1040 instructions only up to page 98) will be used for the rest of the topics in the initial tax preparer certification course. You will be responsible to answer questions from the Form 1040 instructions booklet on every topic so read it carefully.

 

 

Tax Return filing Situation 1:

Please, prepare Form 1040 for Yohannes.

Yohannes, age 23, and has never been married and has no children.

He received the following in 2012:

   
  $2,650.00 in Unemployment Compensation.
  $600 bonus promised to be paid by his employer in February 2013.
  Turkey valued at $50 for the December holidays.
 

Yohannes owed Sears & Roebuck (Department store) $800. He fell behind on the bill and could not pay. To have Yohannes settle the debt, Sears offered to cancel $500 of the debt. Yohannes paid only $300 and the rest was forgiven.

He paid rent at a government owned building that is exempt from tax.

Get all his basic information from the following W2, including income information.

 

Tax Return filing Situation 2:

Please, prepare Form 1040 for Benjamin and Olivia.

Benjamin (Date of Birth 03/04/1969)  and Olivia (Date of Birth 01/20/1970) are married and lived together all of 2012.  

Benjamin and Olivia had the following dependents in 2012. They fully supported them for all of 2012.

First Name Last Name Social Security Number Relationship Date of Birth Months in Home
Henry Smith 611-15-4755 Son 02-01-2003 12
Lizzy Smith 610-15-4756 Daughter 08-10-2004 12
Ryan Smith 611-15-4757 Son 10-22-2006 12
William Smith 611-15-4758 Son 12-27-2008 12
Paddy Smith 611-15-4759 Daughter 07-21-2007 12

Benjamin and Olivia each have contributed $5,000 to a traditional IRA account on March 20, 2013.

The following is taken from Olivia's record of tips: 

Olivia Smith Tips
December 2011 $300
January 2012 $240
February 2012 $300
March 2012 $19
April 2012 $255
May 2012 $300
June 2012 $18
July 2012 $15
August 2012 $240
September 2012 $240
October 2012 $255
November 2012 $210
December 2012 $300

Additionally, Olivia won money from a raffle held at work in the amount of $1,500.

Benjamin and Olivia received the following for 2012. Basic information is correct on all Form W-2s.

After you have completed the above tax returns, answer the following questions:

 

1. Look at the Form 1040 you prepared for Yohannes Mulugeta. What is the amount on Form 1040, Line 7?

 

A. $20,359.
B. $17,679.
C. $16,806. 
D. $19,409.

2. Look at the Form 1040 you prepared for Yohannes Mulugeta. What is the amount on Form 1040, Line 19?

 

A. $2,650.
B. $10,729.
C. $8,329. 
D. $7,829.

3. Look at the Form 1040 you prepared for Yohannes Mulugeta. What is the amount on Form 1040, Line 21?

 

A. $2,650.
B. $500.
C. $8,329. 
D. $7,829.

4. Look at the Form 1040 you prepared for Yohannes Mulugeta. What is the amount on Form 1040, Line 38?

 

A. $2,650.
B. $500.
C. $19,956. 
D. $7,829.

5. Look at the Form 1040 you prepared for Yohannes Mulugeta. What is the amount on Form 1040, Line 40?

 

A. $5,950.
B. $11,900.
C. $8,700. 
D. $7,829.

6. Look at the Form 1040 you prepared for Yohannes Mulugeta. What is the amount on Form 1040, Line 42?

 

A. $5,800.
B. $3,800.
C. $19,956. 
D. $7,829.

7. Look at the Form 1040 you prepared for Yohannes Mulugeta. What is the amount on Form 1040, Line 44?

 

A. $1,099.
B. $3,700.
C. $1,146. 
D. $7,829.

8. Look at the Form 1040 you prepared for Yohannes Mulugeta. What is the amount on Form 1040, Line 62?

 

A. $1,664.
B. $3,700.
C. $1,146. 
D. $7,829.

9. Look at the Form 1040 you prepared for Yohannes Mulugeta. What is the amount on Form 1040, Line 73?

 

A. $565.
B. $518.
C. $1,146. 
D. $7,829.

10. Look at the Form 1040 you prepared for Yohannes Mulugeta. What is the amount on Form 1040, Line 74a?

 

A. $1,664.
B. $0.
C. $518. 
D. $565.

11. Look at the Form 1040 you prepared for Benjamin and Olivia. What is the amount on Form 1040, Line 7?

 

A. $117,951.
B. $115,531.
C. $119,751. 
D. $117,829.

12. Look at the Form 1040 you prepared for Benjamin and Olivia. What is the amount on Form 1040, Line 21?

 

A. $117,951.
B. $0.
C. $1,500. 
D. $7,829.

13. Look at the Form 1040 you prepared for Benjamin and Olivia. What is the amount on Form 1040, Line 22?

 

A. $117,951.
B. $118,951.
C. $119,451. 
D. $117,031.

14. Look at the Form 1040 you prepared for Benjamin and Olivia. What is the amount on Form 1040, Line 32?

 

A. $10,000.
B. $0.
C. $5,000. 
D. $7,829.

15. Look at the Form 1040 you prepared for Benjamin and Olivia. What is the amount on Form 1040, Line 36?

 

A. $8,000.
B. $0.
C. $10,000. 
D. $7,829.

16. Look at the Form 1040 you prepared for Benjamin and Olivia. What is the amount on Form 1040, Line 38?

 

A. $10,000.
B. $109,451.
C. $107,031. 
D. $7,829.

17. Look at the Form 1040 you prepared for Benjamin and Olivia. What is the amount on Form 1040, Line 40?

 

A. $11,900.
B. $109,451.
C. $11,600. 
D. $7,829.

18. Look at the Form 1040 you prepared for Benjamin and Olivia. What is the amount on Form 1040, Line 42?

 

A. $25,900.
B. $109,451.
C. $26,600. 
D. $7,829.

 

19. Look at the Form 1040 you prepared for Benjamin and Olivia. What is the amount on Form 1040, Line 44?

 

A. $9,409.
B. $109,451.
C. $11,600. 
D. $7,829.

 

20. Look at the Form 1040 you prepared for Benjamin and Olivia. What is the amount on Form 1040, Line 45? (Complete 1040A AMT Worksheet or Form 6241 to know for sure).

 

A. $25,900.
B. $0.
C. $11,600. 
D. $7,829.

21. Look at the Form 1040 you prepared for Benjamin and Olivia. What is the amount on Form 1040, Line 51?

 

A. $4,850.
B. $0.
C. $5,000. 
D. $7,829.

22. Look at the Form 1040 you prepared for Benjamin and Olivia. What is the amount on Form 1040, Line 54?

 

A. $5,000.
B. $0.
C. $4,850. 
D. $7,829.

23. Look at the Form 1040 you prepared for Benjamin and Olivia. What is the amount on Form 1040, Line 55?

 

A. $5,244.
B. $0.
C. $5,000. 
D. $4,409.

24. Look at the Form 1040 you prepared for Benjamin and Olivia. What is the amount on Form 1040, Line 57?

 

A. $5,244.
B. $41.
C. $5,000. 
D. $0

25. Look at the Form 1040 you prepared for Benjamin and Olivia. What is the amount on Form 1040, Line 61?

 

A. $4,450.
B. $4,409.
C. $5,591. 
D. $7,829.

26. Look at the Form 1040 you prepared for Benjamin and Olivia. What is the amount on Form 1040, Line 62?

 

A. $5,244.
B. $41.
C. $11,362. 
D. $7,829.

27. Look at the Form 1040 you prepared for Benjamin and Olivia. What is the amount on Form 1040, Line 65?

 

A. $0.
B. $5,244.
C. $5,000.
D. $7,829.

28. Look at the Form 1040 you prepared for Benjamin and Olivia. What is the amount on Form 1040, Line 72?

 

A. $0.
B. $11,362.
C. $5,000.
D. $7,829.

29. Look at the Form 1040 you prepared for Benjamin and Olivia. What is the amount on Form 1040, Line 73?

 

A. $6,953.
B. $5,771.
C. $6,912.
D. $7,829.

30. Look at the Form 1040 you prepared for Benjamin and Olivia. What is the amount on Form 1040, Line 75?

 

A. $6,077.
B. $11,362.
C. $0.
D. $7,829.

If you are answering the questions directly on this page, make sure you print them before you click on "Assignment" in step 2 above. If you don't have a printer, then write the answers down before you proceed.

 

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Revised: 12/18/17