Tax Implications of Changing Circumstances - Review Questions Flashcards
Most recently widowed individuals do not qualify for surviving spouse status. Why?
Most individuals are widowed late in life after their children are grown and have left home. Because having a dependent child is a requirement for surviving spouse status, these individuals do not qualify for the lower tax rate. Such individuals may ordinarily file a joint return in the year of the spouse’s death.
In order to file as a single taxpayer, which of the following conditions must one meet? (Check all that are true.)
1) Does not qualify as a surviving spouse or a head of household.
2) Single at the end of the year.
3) Pay over half of the costs of maintaining his or her home.
1) Does not qualify as a surviving spouse or a head of household.
2) Single at the end of the year.
In order to file as a single taxpayer, one must not qualify for the status of surviving spouse or head of household and be single at the end of the year.
Which separate maintenance payment is deductible by the payor spouse and taxable to the payee spouse?
Choose the best answer.
1) Alimony as a result of a 2018 divorce
2) Child support
3) Property settlements
1) Alimony as a result of a 2018 divorce
Alimony is deductible by the payor spouse and taxable to the payee spouse as long as the divorce was finalized in 2018. Neither child support payments nor property settlements have any tax ramifications.
Why are QDROs not the right method to distribute federal government retirement benefits?
While QDROs are the way most qualified retirement plans are distributed during a divorce settlement, they are not the right method for distributing federal government retirement benefits because federal government plans are exempt from the Employee Retirement Income Security Act of 1974.
Joan and Jeff got married on December 31st. Which of the statements below best describes the tax consequences of the marriage?
1) They are considered married for the entire year and must file as Married Filing Jointly or Married Filing
Separately.
2) Since they were not married for 364 days and only married 1 day, they can file as Single for one last year.
3) They must file as Married Filing Separately for this first year.
4) Since they were not married on January 1st of the tax year, they may file as they please for the current year.
1) They are considered married for the entire year and must file as Married Filing Jointly or Married Filing
Separately
That is the tax code – considered married for the entire year.
Debbie and Dan are going through divorce mediation. The mediator has suggested two possible Alimony choices for Dan.
Choice 1: Pay Debbie $30,000 per year for 5 years, or
Choice 2: Pay Debbie $45,000 per year for 3 years.
If Dan’s opportunity cost is 8.5%, what would be best for him assuming Debbie does not remarry or die before the 5 years is up?
1) Choice 1, if payments are made at the beginning of year.
2) Choice 1, if payments are made at the end of year.
3) Choice 2, if payments are made at the beginning of year.
4) Choice 2, if payments are made at the end of year.
4) Choice 2, if payments are made at the end of year.
The present value with the least amount will be best for Dan. The PV of:
Choice 1, with payments made at beginning = $128.268.
Choice 1, with payments made at end = $118.219.
Choice 2, with payments made at beginning = $124.700.
Choice 2, with payments made at end = $114.931
Which one of the following is not a requirement to be met to deduct alimony payments?
1) The parties must not file a joint tax return at the time of payment.
2) The legal document or state law must require that payments will stop after the recipient spouse dies.
3) Payments must be received by or for the benefit of the payee spouse.
4) Payments must be equal in each year of the agreement.
4) Payments must be equal in each year of the agreement.
There is no such requirement. The other three statements are true.
