Deck 8: Individual Income Tax Computation and Tax Credits

Question 1

The alternative minimum tax system requires taxpayers to apply an alternative tax rate on the regular income tax base to determine the amount of the alternative minimum tax.

Answer 1

False

Question 2

In certain circumstances a child with very little income may have at least a portion of their income taxed at the parents' marginal tax rate.

Answer 2

True

Question 3

Regular taxable income is the starting point for determining the alternative minimum tax.

Answer 3

True

Question 4

The AMT exemption amount is phased-out for high income taxpayers.

Question 5

For alternative minimum tax purposes, taxpayers are allowed to deduct state income taxes but are not allowed to deduct charitable contributions.

Question 6

For alternative minimum tax purposes, taxpayers are required to add back the regular tax standard deduction amount for their filing status whether or not they itemized deductions for regular tax purposes.

Question 7

A marriage penalty occurs when a couple pays more taxes by filing a joint tax return thanthey would have paid had they filed married filing separate returns.

Question 8

If both spouses of a married couple earn roughly equivalent wages, the couple is likely topay a marriage penalty due to the nature of the tax rate schedules.

Question 9

Taxpayers are not allowed to deduct personal or dependency exemptions for alternative minimum tax purposes.

Question 10

Tax rate schedules are provided for use by (relatively) higher income taxpayers while thetax tables are provided for use by (relatively) lower income taxpayers.

Question 11

If a married couple has one primary breadwinner, filing a joint return will likely result ina marriage penalty.

Question 12

Both the width (or range) of the tax brackets (the amount of income taxed at a particularrate) in the tax rate schedules and the range of the tax rates in the tax rate schedules (the difference between the lowest tax rate and the highest tax rate) vary by filing status.

Question 13

All else equal, a reduction in regular income tax rates would require more taxpayers to pay the alternative minimum tax.

Question 14

The alternative minimum tax is the AMT base multiplied by the AMT rate.

Question 15

All capital gains are taxed at preferential rates.

Question 16

Generally, income from an active trade or business is subject to the 3.8% net investmentincome tax.

Question 17

Long-term capital gains, dividends, and taxable interest income are all taxed atpreferential rates.

Question 18

Long-term capital gains are taxed at the stated AMT rate for purposes of the alternative minimum tax.

Question 19

The kiddie tax does not apply to children over 24 years old at the end of the tax year.

Question 20

The tax rate schedules are set up to tax lower levels of income at higher tax rates thanhigher levels of income.

Question 21

The American opportunity credit is available only for those students who are in their first or second year of postsecondary education.

Question 22

The American opportunity credit and lifetime learning credit are available to all taxpayers regardless of their income level.

Question 23

Parents may claim a child and dependent care credit for expenses incurred in providing for their dependents while the parents work as long as the children are over age 14 and under age 20 at year end.

Question 24

All else equal, taxpayers are more likely to be classified as employees rather thanindependent contractors if they are allowed to determine their own working hours and work without frequent oversight.

Question 25

The child tax credit is subject to phase-out based on the taxpayer's AGI.

Question 26

John and Sally pay Janet (Sally's older sister) to watch John and Sally's child Dexterduring the day. Janet cares for Dexter in her home. John and Sally may claim a child and dependent care credit based on the amount they pay Janet to care for Dexter.

Question 27

Tax credits reduce a taxpayer's taxable income dollar for dollar.

Question 28

The child and dependent care credit entitles qualifying taxpayers to a credit equal to the full amount of qualified expenses.

Question 29

Employees are not allowed to deduct FICA taxes they pay.

Question 30

The lifetime learning credit can be used toward the cost of any course of instruction to acquire or improve a taxpayer's job skills, no matter the age of the taxpayer.

Question 31

Employees are allowed to deduct a portion of the FICA taxes they pay.

Question 32

Employees must pay both Social Security tax and Medicare tax on the full amount of their wages no matter the amount of their wages.

Question 33

Parents may claim a child tax credit for a dependent child who is 22 years of age at the end of the year if the child is a full-time student.

Question 34

For married couples, the Social Security wage base limitation applies separately to each spouse.

Question 35

Due to the alternative minimum tax rate structure, timing tax planning strategies are not effective under the alternative minimum tax system.

Question 36

For married couples, the .9 percent additional Medicare tax is based on the couple's combined wages.

Question 37

Employee status is always better than independent contractor status for a taxpayerbecause the employee is responsible for paying the employee portion of the FICA taxes.

Question 38

Self-employed taxpayers are allowed to deduct the full amount of the self-employment taxes they pay.

Question 39

Alton reported net income from his sole proprietorship of $90,000. To determine his self employment tax, he would multiply $90,000 by the self-employment tax rate.

Question 40

Katlyn reported $300 of net income from her sole proprietorship. She is not required to pay self-employment tax.

Question 41

Tamra and Jacob are married and they file a joint tax return. Tamra received nearly five times the salary that Jacob received. Which of the following statements is true?

A) Tamra and Jacob likely receive a tax marriage benefit.
B) Tamra and Jacob likely pay no tax marriage penalty nor receive a tax marriage benefit.
C) Tamra and Jacob likely pay a tax marriage penalty.
D) Tamra and Jacob likely will pay a tax marriage penalty and receive a tax marriage benefit.

Question 42

The taxable income levels in the married filing jointly tax rate schedule are ________those in the married filing separately schedule.

A) double
B) half the amount of
C) the same as
D) None of the choices are correct.

Question 43

Business credits are generally refundable credits.

Question 44

Harrison received a qualified dividend. Without knowing any additional facts, which of the following statements is true regarding the rate at which the dividend will be taxed to Harrison?

A) The dividend will be taxed at a 20% tax rate.
B) The entire dividend will be taxed at either 15% or the entire dividend will be taxed at 20% depending on Harrison's marginal ordinary income tax rate.
C) The dividend will be taxed at a 15% tax rate.
D) None of the choices are correct.

Question 45

The late payment penalty is based on the amount of tax owed and the number of days that the tax is not paid. The maximum amount of the penalty is unlimited.

Question 46

Depending on the year, the original (unextended) due date for an individual's tax return may be before April 15.

Question 47

Stephanie and Mitch are married and they file a joint tax return. Mitch received a slightly higher salary than Stephanie did during the year. Which of the following statements is true?

A) Stephanie and Mitch likely receive a tax marriage benefit.
B) Stephanie and Mitch likely pay no tax marriage penalty nor receive a tax marriage benefit.
C) Stephanie and Mitch likely will pay a tax marriage penalty and receive a tax marriage benefit.
D) Stephanie and Mitch likely pay a tax marriage penalty.

Question 48

An individual could pay 100% of her tax liability by the due date of her tax return and still be subject to underpayment tax penalties.

Question 49

The earned income credit is sometimes referred to as a negative income tax.

Question 50

Jamie is single. In 2017, she reported $100,000 of taxable income, including a long-term capital gain of $5,000. What is her gross tax liability, rounded to the nearest whole dollar amount? (use the tax rate schedules)

A) $20,982
B) $15,000
C) $20,332
D) $19,582

Question 51

When applying credits against a taxpayer's gross tax liability, nonrefundable personal credits are applied first, then business credits, and finally refundable personal credits.

Question 52

Taxpayers are generally allowed to carry back and/or carry forward unused business credits.

Question 53

Individuals may file for and receive a six-month extension of time to file their tax return and pay their taxes without penalty.

Question 54

To qualify for the earned income credit, the taxpayer must have a qualified dependent.

Question 55

An 80-year-old taxpayer with earned income and no dependent children could qualify for the earned income credit.

Question 56

Angelena files as a head of household. In 2017, she reported $51,400 of taxable income, including a $10,000 qualified dividend. What is her gross tax liability, rounded to the nearest whole dollar amount? (use the tax rate schedules)

A) $7,521
B) $5,543
C) $7,102
D) $5,633

Question 57

Which of the following is not a taxpayer filing status for purposes of determining the appropriate tax rate schedule?

A) Single
B) Qualifying Widow or Widower
C) Married Filing Separately
D) Head of Household
E) All of the choices are taxpayer filing statuses

Question 58

Depending on the year, the original (unextended) due date for an individual's tax return may be after April 15.

Question 59

Miley, a single taxpayer, plans on reporting $28,950 of taxable income this year (all of her income is from a part-time job). She is considering applying for a second part-time job that would give her an additional $10,000 of taxable income. By how much will the income from the second job increase her tax liability? (use the tax rate schedules)

A) $1,600
B) $1,000
C) $2,500
D) $1,500

Question 60

Linda is a qualifying widow in 2017. In 2017, she reports $80,000 of taxable income (all ordinary). What is her gross tax liability using the tax rate schedules? (Tax rate schedule)

A) $15,893
B) $14,253
C) $15,739
D) $11,478

Question 61

The computation of the alternative minimum tax base begins with regular taxableincome. Which of the following is not part of the formula for computing the alternative minimum tax base?

A) Add the standard deduction amount if used for regular tax.
B) Subtract personal exemptions.
C) Add back tax exempt interest from a private activity bond not issued in 2009 or 2010.
D) Subtract the AMT exemption amount (if any).

Question 62

Allen Green is a single taxpayer with an AGI (and modified AGI) of $210,000, which includes $170,000 of salary, $25,000 of interest income, $10,000 of dividends, and$5,000 of long-term capital gains. What is Allen's net investment income tax liability this year, rounded to the nearest whole dollar amount?

A) $570
B) $380
C) $2,465
D) $1,520

Question 63

Which of the following statements regarding the AMT exemption amounts is not true?

A) The exemption amount is completely phased-out for high income taxpayers.
B) The amount of the exemption depends on the taxpayer's filing status.
C) Taxpayers must choose whether they will claim the exemption or itemize deductions.
D) None of these statements is false (all of these statements are true).

Question 64

Montague (age 15) is claimed as a dependent by his parents Matt and Mary. In 2017, Montague received $5,000 of qualified dividends and he received $800 from a part time job. What is his taxable income for 2017?

A) $0
B) $4,650
C) $4,750
D) $3,900

Question 65

In 2017, Maia (who files as a head of household) reported regular taxable income of$115,000. She itemized her deductions, deducting $8,000 in charitable contributions and$3,000 in state income taxes. She claimed exemptions for herself and her son, Hermes, ($4,050 each). What is Maia's alternative minimum taxable income?

A) $126,000
B) $115,000
C) $134,100
D) $126,100

Question 66

Which of the following could explain why a large number of taxpayers are subject to (or could become subject to) AMT?

A) The AMT exemption amount is indexed to increase with inflation.
B) Property values are decreasing.
C) Regular tax rates have decreased since the AMT was enacted.
D) The personal and dependency exemption amounts are not increasing as fast as the AMT exemption is decreasing.

Question 67

During 2017, Montoya (age 15) received $2,200 from a corporate bond. He also received$600 from a savings account established for him by his parents. Montoya lives with his parents and he is their dependent. What is Montoya's taxable income?

A) $2,200
B) $1,750
C) $2,800
D) $0

Question 68

Which of the following is not typical of taxpayers who are most likely affected by theAMT?

A) Pay high property taxes.
B) Have many dependents.
C) Have relatively low capital gains.
D) Pay high state income tax.

Question 69

Assuming the kiddie tax applies, what amount of a child's income is subject to the kiddie tax?

A) All of it.
B) Taxable income less the standard deduction.
C) All of the unearned income.
D) The net unearned income.

Question 70

Which of the following is not a barrier to income shifting among family members?

A) Elimination of preferential tax rates (on dividends and long-term capital gains) for dependents.
B) Net unearned income for children 18 and younger taxed at parents' marginal tax rates.
C) The assignment of income doctrine.
D) Two of the choices.

Question 71

Hester (age 17) is claimed as a dependent by his parents, Charlton and Abigail. In 2017, Hester received $10,000 of qualified dividends and he received $6,200 from a part time job. What is his taxable income for 2017?

A) $16,200
B) $15,150
C) $9,650
D) $9,850

Question 72

Which of the following statements accurately describes the alternative minimum tax rate(s)?

A) The AMT rates represent a progressive tax rate structure.
B) The AMT rate is the same rate for all taxpayers.
C) The top AMT marginal rate is higher than the top regular tax marginal tax rate.
D) None of the choices are correct.

Question 73

Harmony reports a regular tax liability of $15,000 and tentative minimum tax of$17,000. Given just this information, what is her alternative minimum tax liability for the year?

A) $0
B) $17,000
C) $2,000
D) $15,000

Question 74

Asteria earned a $25,500 salary as an employee in 2017. How much should her employer have withheld from her paycheck for FICA taxes (rounded to the nearest whole dollar amount)?

A) $1,581
B) $1,951
C) $370
D) $3,902

Question 75

The Olympians have three children. The kiddie tax applies to unearned income received by which of the following children?

A) Zeus is 20 years old and not a student.
B) Poseidon is a 20-year-old full-time student who does not support himself.
C) Demeter, a 23-year-old full-time student who supports herself with a job at a grocery store.
D) Two of the choices.
E) None of the choices are correct.

Question 76

During 2017, Jasmine (age 12) received $2,400 from a corporate bond. She also received$600 from a savings account established for her by her parents. Jasmine lives with her parents and she is their dependent. Assuming her parents' marginal tax rate is 28%, what is Jasmine's gross tax liability?

A) $357
B) $0
C) $252
D) $105

Question 77

The alternative minimum tax base is typically ________ the regular income tax base.

A) larger than
B) smaller than
C) about the same as
D) exactly the same as

Question 78

Which of the following items is not added back to regular taxable income in computing alternative minimum taxable income?

A) Real property taxes.
B) Home mortgage interest expense.
C) Miscellaneous itemized deductions in excess of the 2% floor.
D) Tax exempt interest from a private activity bond issued in 2007.

Question 79

Hestia (age 17) is claimed as a dependent by her parents, Rhea and Chronus. In 2017, Hestia received $1,000 of interest income from a corporate bond that she owns. In addition, she has earned income of $200. What is her taxable income for 2017?

A) $650
B) $1,200
C) $150
D) $0

Question 80

Persephone has a regular tax liability of $12,475 and a tentative minimum tax of$11,500. Given just this information, what is her alternative minimum tax liability for the year?

A) $975
B) $12,475
C) $0
D) $11,500