Tax 4001

Fall 2015
Hampton
Homework Set #10

DUE DATE: November 19, 2015

1) Compute the taxable income for Mike for 2015 based on the following (his filing status is
single). He lives in a rented apartment and has no itemized deductions:
Salary
Interest Income from ING
Direct
Child support payments
Alimony payments
Gift from Great Uncle
Capital Loss on Stocks
Gambling income (illegal in his
state)

$70,000
$4,000
$8,500
$6,000
$19,750
$5,000
$2,500

Dependents
Age

0
36

2) Compute the taxable income and tax liability for Madison for 2015 based on the
following information. She is married, but has not seen or heard from her husband in 4
years. She owns her home and paid $2,500 in property taxes and $5,000 in home
mortgage interest in 2015.
Salary

$60,000

Interest Income from City of Oshkosh Bonds

$2,600

Interest on CD from SunTrust Bank

$1,500

Dividend from GE stock (she has owned the stock for several years)
Life Insurance paid on death of Grandfather (Madison was the beneficiary of
the policy)

$5,000

Inheritance received on death of Uncle Louie

$15,000

Niece repaid a loan to her from 2010

$8,000

Itemized deductions (mortgage interest and property taxes)

$7,500

Dependents (children ages 12, 11, and 10)

Age

3
44

$50,000

3) Determine the standard deduction allowed for 2015 in the following independent
situations. In each case, assume the taxpayer is claimed as another persons
dependent.
a. David, age 21, has income as follows: $1,200 interest from a money market
account and $8,000 from a part-time job as a bank teller.
b. Addy, age 19, has income as follows: $350 interest from a CD and $3,900 from
baby-sitting.
c. June, age 68 and a widow, has income as follows: $2,000 from cash dividends
and $2,300 from working as a tailor.

4) Clara, age 72 and single, is claimed as a dependent on her sons tax return. During 2015,
she had dividend income of $2,500 and $1,800 of earned income from housecleaning.
What is her taxable income?
5) Jonathan is claimed as a dependent on his parents tax return. In 2015, he earned $3,000
at a part-time job selling shoes and had interest income from his bank savings account of
$4,500. He is 21 years old and a full-time student at State University. His parents taxable
income is approximately $250,000.
a. Compute Jonathans taxable income and tax liability.
b. If Jonathan was NOT a full-time student, would his parents be able to claim him as a
dependent? How much would his taxable income and tax liability be in this case?
6) Erick comes to you asking for your advice. He wishes to invest $20,000 either in a debt
security or in an equity investment. His choices are as shown below:
(1) Mockingbird Corporation bond, annual coupon rate of 7.50%.
(2) City of Colby general obligation bond, coupon rate of 6.00%.
(3) Robin Corporation, 7.50% preferred stock (produces qualified dividend income).
These alternatives are believed to carry comparable risk. Assuming that Erick is in the 35%
marginal tax bracket, which investment alternative could be expected to produce the
superior annual after-tax return?
7) Assume the same facts as #13, except that Erick is a C-corporation, rather than an
individual, and is in the 34% marginal tax bracket. Assume that the dividend income
received from Robin Corporation qualifies for the 70% dividends received deduction. Which
investment strategy would maximize Erick, Inc.s annual return?