Deck 14: Special Tax Computation Methods, tax Credits, and Payment of Tax

Question 1

In computing AMTI,tax preference items are

A) excluded.
B) added only.
C) subtracted only.
D) either added or subtracted.

Answer 1

B
Explanation: B) All tax preferences are added to compute the tax base for AMT.

Question 2

For purposes of the AMT,the standard deduction,but not the personal and dependency exemptions,is allowed.

Answer 2

False
Explanation: Neither the standard deduction nor personal and dependency exemptions are allowed for AMT.

Question 3

A taxpayer acquired new equipment to be used in her business this year.For AMT purposes,depreciation must be recalculated using the straight-line method over the same recovery period used for regular tax purposes.

Answer 3

False
Explanation: Depreciation must be recalculated using the 150% declining balance method.

Question 4

Jake and Christina are married and file a joint return for 2017 with taxable income of $100,000 and tax preferences and adjustments of $20,000 for AMT purposes.Their regular tax liability is $16,478.What is the amount of their total tax liability?

A) $7,248
B) $9,230
C) $16,478
D) $25,708

Question 5

In computing the alternative minimum taxable income,no deduction is allowed for

A) alimony.
B) moving expenses.
C) personal exemptions.
D) individual retirement account contributions.

Question 6

In 2017,Charlton and Cindy have alternative minimum taxable income of $130,000 and file a joint return.For purposes of computing the alternative minimum tax,their exemption is

A) $0.
B) $8,100.
C) $54,300.
D) $84,500.

Question 7

The itemized deduction phase-out,which has the effect of increasing regular taxable income for high income taxpayers,will also raise AMTI.

Question 8

In computing AMTI,adjustments are

A) limited.
B) added only.
C) subtracted only.
D) either added or subtracted.

Question 9

Mortgage interest paid on a mortgage obtained to buy a principal residence,deductible for regular income tax purposes,is also an allowable deduction for AMT.

Question 10

An example of an AMT tax preference item is the excess of MACRS depreciation on equipment over depreciation computed by using the the 150% declining balance method.

Question 11

Casualty and theft losses in excess of 10% of AGI are deductible for AMT purposes.

Question 12

A taxpayer acquired an office building to be used in her business this year.For AMT purposes,depreciation must be recalculated using the straight-line method over 40 years.

Question 13

Mr.and Mrs.Lewis have an alternative minimum tax base of $312,000.Their tentative minimum tax will be

A) $81,120.
B) $87,360.
C) $70,521.
D) $83,604.

Question 14

For purposes of the AMT,only the foreign tax credit and refundable personal credits are allowed to reduce the tentative minimum tax.

Question 15

The alternative minimum tax applies to individuals only if it exceeds the taxpayer's regular income tax liability.

Question 16

All tax-exempt bond interest income is classified as an AMT preference.

Question 17

Harley's tentative minimum tax is computed by multiplying the AMT tax rates by her

A) taxable income.
B) alternative minimum tax base.
C) alternative minimum taxable income.
D) tentative alternative taxable income.

Question 18

A taxpayer who paid AMT in prior years,but is not subject to the AMT in the current year,may be entitled to an AMT credit against his regular tax liability in the current year.

Question 19

Reva and Josh Lewis had alternative minimum taxable income of $350,000 in 2017 and file a joint return.For purposes of computing the alternative minimum tax,their exemption is

A) $37,225.
B) $47,275.
C) $0.
D) $84,500.

Question 20

Drake and Davina are married and file a joint return for 2017 with taxable income of $100,000 and tax preferences and adjustments of $51,000 for AMT purposes.Their regular tax liability is $16,478.What is the amount of their total tax liability?

A) $17,290
B) $39,260
C) $33,768
D) $16,478

Question 21

Hong earns $127,300 in her job as a physician's assistant.She also has her own business selling cosmetics.This business generated $10,000 of earnings.What is Hong's self-employment tax for 2017?

A) $268
B) $290
C) $1,412
D) $1,530

Question 22

John has $55,000 of self-employment earnings from a sole proprietorship.John is also employed part-time by a major corporation and is paid $25,000.John's self-employment tax for 2017 is

A) $3,886.
B) $4,208.
C) $7,771.
D) $8,415.

Question 23

Self-employed individuals are subject to the self-employment tax if their net earnings are more than the personal exemption amount.

Question 24

Jorge has $150,000 of self-employment earnings from a sole proprietorship.Jorge's self-employment tax (rounded) for 2017 is

A) $19,790.
B) $22,950.
C) $21,194.
D) $19,462.

Question 25

Self-employment taxes include components for

A) Medicare hospital insurance and SUTA.
B) Social Security and FUTA.
C) FICA and FUTA.
D) Social Security and Medicare hospital insurance.

Question 26

A wage cap does not exist for which of the following self-employment taxes?

A) Social Security tax
B) FICA
C) FUTA
D) Medicare hospital insurance

Question 27

Annie has taxable income of $100,000,a regular tax liability of $20,982,a positive AMT adjustment due to limitations on itemized deductions of $20,000,and tax preferences of $25,000 in 2016.Annie is single and takes a $4,050 personal exemption for herself only.What is Annie's AMT for 2016?

Question 28

If an individual is an employee and also has self-employment income,the maximum tax base for computing self-employment tax is reduced by the wages that are subject to the FICA tax.

Question 29

If an individual is liable for self-employment tax,a portion of the self-employment tax is

A) a for AGI deduction.
B) from AGI as an itemized deduction.
C) a Schedule C business expense.
D) nondeductible.

Question 30

George and Meredith who are married,have a regular tax liability of $22,728 based on regular taxable income of $125,000.This year they generated tax preferences of $25,000,and positive adjustments attributable to limitations on itemized deductions of $18,700.In determining regular taxable income,they had claimed $12,150 of personal and dependency exemptions for themselves and their 20-year-old dependent daughter.What is George and Meredith's alternative minimum tax for 2017?

Question 31

In calculating a taxpayer's AMT,adjustments for timing differences will be made for all of the following assets except for

A) incentive stock options.
B) an office building placed in service in 2015.
C) machinery placed in service in 2016 (bonus depreciation is not applicable).
D) All of the above will require a timing adjustment for AMT.

Question 32

When a husband and wife file a joint return and both have self-employment income,the self-employment tax must be computed separately.

Question 33

Suzanne,a single taxpayer,has the following tax information for the current year.
• Charitable contribution of real property with a FMV of $25,000 (adjusted basis $20,000) for which a $25,000 deduction was taken for regular tax.
• Research and experimental expenses of $40,000 deducted in full for regular tax.
Suzanne's total tax preferences and adjustments equals

A) $5,000.
B) $36,000.
C) $41,000.
D) $45,000.

Question 34

In computing AMTI,all of the following must be added back except

A) home mortgage interest (on mortgage in effect since home was purchased).
B) state income taxes.
C) unreimbursed employee business expenses.
D) property taxes on an individual's home.

Question 35

One-half of the self-employment tax imposed is allowed as a for AGI deduction.

Question 36

Rex has the following AMT adjustment factors:
-Depreciation of real property acquired in 1996 using MACRS is $22,000 while depreciation for AMT purposes is $15,000.
-R&E expenditures amounting to $60,000 are expensed.
The net adjustment is

A) $7,000.
B) $54,000.
C) $61,000.
D) $67,000.

Question 37

If an individual is classified as an employee,the employer is required to withhold the employee's share of the FICA tax and to provide a matching amount.

Question 38

All of the following are allowable deductions under the alternative minimum tax except

A) charitable contributions.
B) gambling losses.
C) qualified housing interest.
D) state income taxes.

Question 39

A self-employed individual has earnings from his business of $300,000 in 2017.For the earnings in excess of $127,200,he will only have to pay the 2.9% Medicare Tax.

Question 40

Lavonne has a regular tax liability of $13,239 on taxable income of $70,000.She also has tax preferences of $25,000 and positive adjustments attributable to limitations on itemized deductions of $15,000.Lavonne is single and takes a $4,050 personal exemption for herself only.Lavonne's alternative minimum tax for 2017 is

A) $0.
B) $2,296.
C) $15,535.
D) None of the above.

Question 41

Ava has net earnings from self-employment of $125,000.She also earned salary of $170,000 from a job held earlier in the year.How much Additional Medicare Tax will be owed on the self-employment income?

A) $0
B) $769
C) $855
D) $3,625

Question 42

For purposes of the child and dependent care credit,qualifying employment-related expenses cannot include payments to a relative.

Question 43

Qualified tuition and related expenses eligible for the American Opportunity Tax Credit are limited to those incurred the first two years of postsecondary education.

Question 44

Sonya started a self-employed consulting business in the last part of the year and earned $40,000.She had been employed as manager in a consulting firm prior to starting her own business and had earned $135,000.
(a) What is Sonya's self employment tax for 2016?
(b) What is Sonya's deduction for AGI for the SE tax?

Question 45

Jay and Cara's daughter is starting her freshman year of college.Jay and Cara will be able to claim the American Opportunity Tax Credit for a percentage of the cost of tuition,required fees and course materials,but the room and board charges will not qualify for the credit.

Question 46

To claim the Lifetime Learning Credit,a student must take at least one-half of a full-time course load during the year.

Question 47

The Lifetime Learning Credit is partially refundable.

Question 48

Nonrefundable credits may offset tax liability but may not result in additional payments to the taxpayer.

Question 49

Taxpayers with income below phase-out amounts are allowed a child credit of $1,000 for each qualifying child under age 19 or under age 24 if a full-time student.

Question 50

All of the following statements regarding self-employment income/tax are true except

A) the self-employment tax is imposed on net earnings from self-employment when self-employment income is over $400.
B) self-employment tax is computed separately for married individuals filing joint returns.
C) independent contractors are subject to self-employment tax on the amount of net earnings from the self-employment activity.
D) employees who have a business in addition to their regular employment are not subject to the self-employment tax since FICA is withheld on their wages.

Question 51

Tanya has earnings from self-employment of $240,000,resulting in self-employment tax of $22,200 and Additional Medicare Tax of $360.Due to these taxes,Tanya will be allowed a deduction for AGI of

A) $11,280.
B) $22,560.
C) $11,100.
D) $22,200.

Question 52

The child and dependent care credit is partially refundable.

Question 53

All of the following are self-employment income except

A) net income of a sole proprietorship.
B) dividends received by a corporate shareholder.
C) fees received for serving as a director of a corporation.
D) distributive share of partnership income from a partnership operating a business.

Question 54

For purposes of the limitation on qualifying expenses for the child and dependent care credit,a spouse who is either a full-time student or is incapacitated is deemed to have earned income of $250 per month,or $500 per month if there are two or more qualifying individuals in the household.

Question 55

Joan earns $118,700 in her job as a physician's assistant.She also has her own business selling cosmetics.This business generated $10,000 of earnings.What is Joan's self-employment tax for 2017?

A) $1,530
B) $1,322
C) $1,344
D) $268

Question 56

The child and dependent care credit is available to any parent who pays for child care for a child under age 13.

Question 57

The qualified retirement savings contributions credit is based on a maximum contribution of $2,000.

Question 58

The adoption credit based on qualified adoption expenses is generally allowed in the year the adoption is finalized.

Question 59

Lara started a self-employed consulting business in the last part of the year and earned $60,000 of self- employment earnings.She had been employed as manager in a consulting firm prior to starting her own business and had earned $175,000.
(a) What is Lara's Additional Medicare Tax for 2017,if any?
(b) What is Lara's deduction for AGI for the Additional Medicare Tax?

Question 60

Nonrefundable personal tax credits can only offset an individual's regular tax,not AMT.

Question 61

Refundable tax credits

A) only offset a taxpayer's tax liability.
B) may only be used if the taxpayer is receiving a refund.
C) have all expired but may be reinstated with new tax legislation.
D) allow the excess over the taxpayer's tax liability to be paid to the taxpayer.

Question 62

Nonrefundable tax credits

A) only offset a taxpayer's tax liability in the current year.
B) may only be used if the taxpayer is receiving a refund.
C) can be carried back two years and carried forward 15 years if they exceed tax liability in the current year.
D) allow the excess over the taxpayer's tax liability to be paid to the taxpayer.

Question 63

Shafiq,age 16,works part-time at the local supermarket after school and on vacations.He plans to open a Roth IRA to save for his future.Shafiq makes less than $10,000 per year.He can take advantage of the qualified retirement savings contributions credit ("saver's credit").

Question 64

The general business credits are refundable credits.

Question 65

Bud and Stella are married,file a joint return,and have one child,age 3.Their combined AGI is $35,000.Bud and Stella incur $3,500 of child care expenses during the current year.The child and dependent care credit is

A) $600.
B) $700.
C) $750.
D) $875.

Question 66

A credit is available to encourage employers to provide child care for employees.The employer can either operate its own child care facility for its employees or pay a separate qualified child care facility under contract.

Question 67

Mingming and Xavier,unrelated single taxpayers,have each incurred a $1,000 expenditure.Before considering this expenditure,Mingming has taxable income of $500,000 and Xavier has taxable income of $32,000.Assume the expenditure qualifies as either a tax deduction or a 25% credit.Which of the following statements is correct?

A) Mingming will prefer the credit, but Xavier will prefer the deduction.
B) Mingming will prefer the deduction, but Xavier will prefer the credit.
C) Both taxpayers will prefer the credit.
D) Both taxpayers will prefer the deduction.

Question 68

A credit for rehabilitation expenditures is available to a business for the purchase price of a building originally placed in service before 1936.

Question 69

The earned income credit is refundable only if a tax has been withheld.

Question 70

The nonrefundable disabled access credit is available to eligible small businesses for expenditures incurred to make existing business facilities accessible to disabled individuals.

Question 71

Max and Alexandra are married and incur $5,500 of qualifying expenses to care for their two children,ages 2 and 5.Max's earned income is $35,000 and Alexandra's earnings from a part-time job are $5,000.What is the amount of the qualifying expenses for purposes of computing the child and dependent care credit?

A) $3,000
B) $5,000
C) $5,500
D) $6,000

Question 72

The earned income credit is available only to taxpayers with qualifying children.

Question 73

Marvin and Pamela are married,file a joint return,and have two children,ages 9 and 11.Their combined AGI is $65,000.Marvin's earned income is $40,000; Pamela's is $25,000.They incur $6,500 of child care expenses to enable them to be employed during the current year.Their child and dependent care credit is

A) $1,200.
B) $1,300.
C) $1,800.
D) $6,000.

Question 74

The foreign tax credit is equal to the smaller of foreign taxes paid or accrued in the tax year or the portion of the U.S.income tax liability attributable to the income earned in all foreign countries.

Question 75

Business energy tax credits are available to businesses that invest in energy-conserving solar energy properties.

Question 76

Research expenses eligible for the research credit include costs that are incident to the development or improvement of a product or component.

Question 77

A larger work opportunity credit is available for employers who hire any veteran of the U.S.military.

Question 78

A taxpayer's tentative minimum tax exceeds his net income tax so he will be paying the alternative minimum tax this year.The taxpayer has a sole proprietorship through which he has earned general business credits.The taxpayer can reduce his AMT to the extent of his general business credits.

Question 79

Which statement is correct?

A) Tax credits reduce tax liability on a dollar-for-dollar basis.
B) Tax deductions reduce tax liability on a dollar-for-dollar basis.
C) The benefit of a tax credit depends on the taxpayer's marginal tax rate.
D) Tax deductions are less valuable for high-income taxpayers than for low-income taxpayers.

Question 80

In lieu of a foreign tax credit,a taxpayer may elect to take a deduction for foreign taxes paid or accrued.