Notes/Handouts FINAL EXAMINATION 4/23/2017 Module NJ 2.9 Final Exam FINAL EXAMINATION NJ Training TY 2008 1

NJ “Can Do/Cannot Do” List Business Income Schedule C Rental Income from 2 family homes Cancellation of credit card debt K-1 Interest & Dividends K-1 Partnership Income K-1 Capital Gains Cancellation of mortgage debt OID Tax Exempt Interest Sale of Home Mortgage insurance premium First Time Homebuyers Credit Sale of inherited stock Self employment Tax California State Tax Return 2

Pub 4012 Spiral Book Quiz – Can You Find??? Find the following in your spiral book and put down the page number. Do I have to file? Rules for Child and Dependent Care? Can I be Head of Household? Is severance pay taxable or not? Can the person living with me be my dependent? What do I do with foreign taxes? When do I get my refund? What the heck is NAEOB on the interest worksheet? Can I deduct my Jenny Craig weight loss program? What are my options for paying the amount I owe? Am I eligible for EIC? 3

Must/Should File Quiz 1 Miranda, a senior in high school, is claimed on her parents’ return. The W-2 from her part time job showed $2000 as wages and federal tax withheld of $155.00. Her grandparents gave her a $3000 bank CD as a birthday present. She has no other income. Must or should Miranda file? Yes, to get back her withholding. CD is a gift – not counted in income.

Must/Should File Quiz 2 Kathy (22 years old) lives at home and works part time while attending college full time. She earned $850 babysitting and $3000 reported on a W-2 from a company. No tax was withheld. Must or should Kathy file? Yes; has >$400 in self-employment income. If all income had been from W-2, would not have needed to file.

Filing Status Problem 3 Jane, age 69, whose husband died on July 1, had $20,000 pension and $15,000 in social security in the tax year. Her 10-year-old grandson Joe lives with her and is her dependent. Assuming nothing changes, what is the best filing status for Jane for the current tax year? MFJ The subsequent 3 tax years? Next 2 years – QW; 3rd year - HOH

Filing Status Problem 4 Luke and Linda are still married, but chose to live apart for most of the year. Their two children lived with Linda all year. In August, Luke was out of a job so he moved back into the house for just that month. What filing status can they each choose? MFJ or MFS

Filing Status Problem 5 Dick and Jane are married, lived apart all year and are filing separate returns. Their 25-year-old daughter Jody lived with Jane all year while attending school full-time. Jody earned $2500 during the summer. What is Jane’s best filing status? HOH What would Jane’s filing status be if Jody earned $3800? MFS

Education Credits Quiz 1 Jim & May Brown, AGI of $28,000, 2 children: Rose, a sophomore, in college this year John, a senior, in college this year Both children claimed as dependents Browns paid for Rose: $600 on 4/1, $600 on 8/1, $600 on 12/1 (for next years tuition). Browns paid for John: $600 on 4/1, $600 on 8/1, and $600 on 12/1 (for next years tuition). What education credits can they get? What would be the tentative amounts?

Education Credits Quiz 1 - ANSWERS American Opportunity (Hope) Credit for Rose & John $1,800 each If John had paid for his own tuition, how would the answer differ? Not at all, unless John not claimed as a dependent.

Education Credits Quiz 2 Maria is divorced and has one son, Ed Ed is a college sophomore. Supported son, Ed, in her home all last year Ex-husband claims Ed as a dependent on the basis of the divorce agreement Maria paid $4000 in tuition for Ed last year. Who can claim the education credit? Only Ed can claim the credit.

EIC Quiz 3 Bill is 30 years old and earned $33,000; his wife, Emily, is 27 and earned $1000. Bill and Emily have 3 children under age 19 who lived with both of them until August when they divorced. The children lived with Emily through the rest of the year. Who is eligible to claim EIC?

EIC Quiz 3 – Answer Either is eligible to claim all or one of them can claim 1 child and the other claim 2

EIC Quiz 3 – Follow-Up What if they can’t agree? Emily would be the one eligible to claim because the children lived with her longer. What if the children lived an equal amount of time with each. Who would be able to claim if they can’t agree? Bill, because he had the higher AGI.

Pop Quiz 1 Frances has never married, but she provided more than 50% of the support for her elderly cousin Rita who had no gross income and who lived with Frances all year. What filing status is best for Frances? Single (cousins don’t count as a relative) Can she claim Rita as a dependent? Yes (income<exemption amt; lived with all yr)

Pop Quiz 2 Brenda, 63, who is a widow, owns own home Provides total support for permanently disabled son Brian, 30, who lives with her and has no income. Pays a neighbor $120/week to care for Brian while she works part-time. She worked 30 weeks in the tax year and earned $20K. Only other income is an $8K/yr pension. Consider dependency, CTC, CDC and EIC.

Pop Quiz 2 – Q&A Can Brenda claim Brian as a dependent? Yes Is she eligible for the child tax credit? No; Brian not under 17 What will be her child/dependent care credit? Appropriate % of $3600 ($120 x 30) Is she eligible for the EIC?

Pop Quiz 3 Dick & Kay, both single, lived together all year. Their baby & Kay’s sons also lived with them. Per Kay’s 2000 divorce decree, her ex claims the dependent exemption for older son, 15. Dick earned $28K, paid all rent/utilities, half the food, & all expenses except childcare for baby. Kay worked 6 mos full-time, earned $7K. She paid son, 15, $100/mo to watch brother, 10, after school and ABC Daycare $800 for baby. Consider filing status, exemptions & credits.

Pop Quiz 3 - Q&A What filing status can Dick & Kay each use? Dick – HOH; Kay - Single What dependents can each claim? Dick – baby; Kay – son, 10 Who can claim child tax credit? For whom? Who can claim child care credit? No-one (baby not Kay’s dependent, Dick didn’t pay; elder son, dependent of ex and <19)

Pop Quiz 3 - Q&A, continued Do either Dick or Kay qualify for EIC? Dick – with baby; Kay – with sons, 10 and 15 Does Kay need to file? Not required, but should to get EIC credit. Could you suggest any ways to make their combined tax bill lower? Dick should pay the child care for the baby and then can obtain the child/dependent care credit.