Question

Please answer all the questions.

1. Bob uses the cash method of accounting. During the tax year (calendar year), he had the following income and expenses:

 Interest on a savings account (credited to his account on January 2 of next year)

 Dividend received from Virginia Credit Union
 Interest received on a 5-year certificate of deposit (left in CD

account to compound)
 Penalty on the early withdrawal of the 5-year certificate of

deposit

$ 68

$814 $910

$ 50

What is the amount of interest income Bob must report for the current tax year?

a) $1,792 b) $ 910 c) $1,724 d) $1,674

2. The Smiths are married and have filed jointly in prior years. On July 29th of the current tax year, the Smiths separated and filed for divorce. Mrs. Smith has decided to file separately this year. Which of the following statements is true?

   1. a) The taxpayers must be living apart from their spouse to file Married Filing Separately.

   2. b) The taxpayers must be living together as of December 31 to file Married Filing Separately.

   3. c) A married taxpayer can file Married Filing Separately if living together or apart.

   4. d) The taxpayers must have lived apart from their spouse for the last six months of the year.

3. Mark and Julie, married, with no dependents, have filed a joint return in previous years. Julie died in March 2018. Which filing status would be most beneficial for Mark in tax year 2018?

   1. a) Single

   2. b) Married Filing Jointly

   3. c) Head of Household

   4. d) Qualifying Widow(er) with Dependent Child

4. Which of the following pieces of information is shown/found on Form W2?

   1. a) The taxpayer’s filing status, wages, tips, and other compensation.

   2. b) The taxpayer’s wages, tips, and other compensation

   3. c) The taxpayer’s refund and amount of tax withheld.

   4. d) The taxpayer’s unreported tips along with the taxpayer’s reported tips

5. Dani is a 25-year old full-time graduate student. Following are the tax-related facts we know about Dani.

   •  Beginning in tax year 2018, Dani is no longer a dependent on her parent’s tax return.

   •  Dani was laid off at her job on October 15th and received a Form W-2 for earnings

     from January through October.

   •  Dani received unemployment income from October 15th through December 31st after

     being laid off from her job.

   •  Dani paid for her graduate school education in the current tax year and is eligible for

     a nonrefundable tax credit.

     Which Schedule(s) must Dani complete in addition to Form 1040?

   1. a) Schedules 1 and 3

   2. b) Schedules 1 and 2

   3. c) Schedule 6

   4. d) Schedules 3 and 5

Answer 1

1. Bob follows cash basis of accounting; hence Interest received on Jan 2 cannot be reported in the in current year, Interest received from CD also cannot be reported as it is left in CD account to get compounded and penalty also not get reported in the interest income as it is associated with CD account.

Only Dividend received from Virgina Credit Union of $ 910 has to be reported as "Interest income" in current year.

2. Married Couple may file their return separately under status "Married filing separately" irrespective that whether they are living together or apart.

3. As Julie died during the same tax year 2018, Mark can still file the return as "MARRIED FILING JOINTLY" status as there are no dependents

4. Schedule 1 & 3 of Form 1040 is applicable, as Dani has unemployment income and non-refundable tax credit.

Answer 2

The answer is 1,724. The question ask how much interest income must he report for that year. It wouldnt include interest on saving because of the date, it would include dividend received from virginia credit union because its considered interest, also amount from the CD because it was received. the money was reinvested. the penalty is a deductable but the entire amount received from the cd is still reported.