Question 1

A taxpayer will be ineligible for the earned income credit if he or she has disqualified investment income of more than $3,350 in 2014. Disqualified income includes all the following except
A)net capital gains.
B)tax-exempt interest.
C)net rental income.
D)self-employment income.

Accepted Answer

Disqualified investment income includes net rental income, net capital gains, and tax-exempt interest. Self-employment income is not considered investment income and does not disqualify a taxpayer from the earned income credit.

Question 2

Which of the following statements is incorrect regarding qualifying criteria for the health insurance premium tax credit?
A)The insurance policy must be purchased directly from an insurance company.
B)Household income must be below designated levels.
C)The taxpayer cannot have access to affordable essential coverage through an employer.
D)The individual may not be eligible as a dependent of another taxpayer.

Accepted Answer

The statement that the insurance policy must be purchased directly from an insurance company is incorrect. The insurance policy can also be purchased through the health insurance marketplace.

Question 3

Kors Corporation has 30 employees and $5 million of gross receipts. Kors spends $15,000 for qualified structural improvements for access for the disabled. The disabled access credit is
A)$5,000.
B)$5,125.
C)$0.
D)$7,500.

Accepted Answer

The answer of Kors Corporation has 30 employees and $5...

Question 4

The general business credit includes all of the following with the exception of
A)research credit.
B)disabled access credit.
C)foreign tax credit.
D)credit for rehabilitation expenditure.

Accepted Answer

The general business credit includes many credits, such as the research credit, disabled access credit, and credit for rehabilitation expenditure. However, the foreign tax credit is not considered part of the general business credit. It is a separate credit that allows a business to offset taxes paid to foreign countries against their U.S. tax liability.

Question 5

Layla earned $20,000 of general business credits from her sole proprietorship. Her regular tax liability is $45,000, and her tentative minimum tax is $49,000. During the current year Layla will apply general business credits of
A)$0.
B)$4,000.
C)$20,000.
D)$45,000.

Accepted Answer

The answer of Layla earned $20,000 of general business credits...

Question 6

Dwayne has general business credits totaling $30,000 before limitation. His regular tax liability is $83,000 and his tentative minimum tax is $79,000. What amount of general business credit can Dwayne take this year?
A)$4,000
B)$14,500
C)$25,000
D)$30,000

Accepted Answer

The answer of Dwayne has general business credits totaling $30,000...

Question 7

Which one of the following is a refundable credit?
A)earned income credit
B)child and dependent care credit
C)lifetime learning credit
D)credit for the elderly and disabled

Accepted Answer

The earned income credit is a refundable credit, meaning that if the credit exceeds the amount of taxes owed, the taxpayer will receive the excess as a refund. The other options are non-refundable credits and can only offset taxes owed.

Question 8

In 2014 Rita is divorced with one child. She has AGI of $19,500 resulting in a federal income tax liability of $250 and an earned income credit of $3,038. She has had $550 of federal income taxes withheld from her pay. Rita will receive a federal income refund of
A)$550.
B)$300.
C)$3,038.
D)$3,338.

Accepted Answer

First, we calculate Rita's total tax liability by adding her federal income tax liability and the total amount of federal income tax she withheld from her pay:
$250 + $550 = $800

Next, we calculate Rita's total refundable credits by adding her earned income credit and any other refundable credits she may have (in this case, she has no other refundable credits):
$3,038 + $0 = $3,038

Finally, we subtract Rita's total refundable credits from her total tax liability:
$800 - $3,038 = -$2,238

Since Rita's total refundable credits are greater than her total tax liability, she will receive a refund of the full amount of her credits:
$3,038

Therefore, the answer is D ($3,338).

Question 9

George and Meredith who are married, have a regular tax liability of $22,963, taxable income of $125,000, tax preferences of $25,000, and positive adjustments attributable to limitations on itemized deductions of $18,700 this year. They claim $11,850 of personal and dependency exemptions for themselves and their 20-year old dependent daughter. What is George and Meredith's alternative minimum tax for 2014?

Accepted Answer

The answer of George and Meredith who are married, have...

Question 10

Individuals without children are eligible for the earned income credit if they meet all the following conditions except
A)file married filing separately.
B)at tax year end are at least age 25 but not more than age 64.
C)for the tax year are not a dependent of another taxpayer.
D)the United States is their principal place of residence for more than one-half of the tax year.

Accepted Answer

Individuals without children are still eligible for the earned income credit if they file as single, head of household, or even married filing jointly. However, they are not eligible if they file as married filing separately.

Question 11

The general business credit may not exceed the net income tax minus the greater of the tentative minimum tax or
A)20% of the net regular tax liability above $20,000.
B)25% of the net regular tax liability above $20,000.
C)20% of the net regular tax liability above $25,000.
D)25% of the net regular tax liability above $25,000.

Accepted Answer

The answer of The general business credit may not exceed...

Question 12

Which of the following expenditures will qualify as a research expenditure for purposes of the research credit?
A)An ice cream producer develops a new type of packaging that will keep ice cream frozen while driving home from the grocery store.
B)An ice cream producer develops a new design on the package that will be more pleasing to the culture of a new market it is entering.
C)An ice cream producer develops a new marketing campaign to introduce its brand to a new region of the country it is entering.
D)All of the above qualify as research expenditures for the research credit.

Accepted Answer

Option A is the only expenditure that qualifies as a research expenditure for purposes of the research credit because it involves the development of a new technology (packaging) that requires experimentation and testing. Options B and C involve the development of a marketing strategy and design, which do not qualify as research expenditures.

Question 13

If a taxpayer's AGI is greater than $150,000, no penalty will be imposed if the taxpayer pays estimated tax payments in 2014 equal to what percentage of 2013's income tax liability?
A)100%
B)90%
C)110%
D)120%

Accepted Answer

The answer of If a taxpayer's AGI is greater than...

Question 14

Annie has taxable income of $100,000, a regular tax liability of $21,176, a positive AMT adjustment due to limitations on itemized deductions of $20,000, and tax preferences of $25,000 in 2014. Annie is single and takes a $3,950 personal exemption for herself only. What is Annie's AMT for 2014?

Accepted Answer

The answer of Annie has taxable income of $100,000, a...

Question 15

An individual with AGI equal to or less than $150,000 in the prior year may generally avoid penalties for underpayment of estimated tax in each of the following cases with the exception of
A)estimated tax is less than $1,500.
B)90% of the tax due for the current year is paid.
C)90% of the tax due for the current year is paid when computed on an annualized basis.
D)100% of the actual tax liability for the prior year is paid.

Accepted Answer

An individual with AGI equal to or less than $150,000 in the prior year may generally avoid penalties for underpayment of estimated tax in each of the following cases:
B) 90% of the tax due for the current year is paid.
C) 90% of the tax due for the current year is paid when computed on an annualized basis.
D) 100% of the actual tax liability for the prior year is paid.
However, if the estimated tax is less than $1,500, then the payment of estimated tax does not need to be made and there will be no penalty for underpayment. So, the exception is choice A.

Question 16

With respect to estimated tax payments for a taxpayer with AGI of $150,000 or lower in the prior year, all of the following are generally true with the exception of
A)no penalty is imposed if the estimated tax is less than $1,000.
B)no penalty is imposed if the individual has no tax liability for the prior year.
C)no underpayment penalty is imposed if the estimated payments total at least 90% of the tax due for the current year.
D)no underpayment penalty is imposed if the estimated payments total at least 90% of the actual tax liability for the prior year.

Accepted Answer

This statement is not true. For taxpayers with AGI of $150,000 or lower in the prior year, the estimated tax payments must total at least 100% of the tax liability for the prior year (or 90% of the actual tax liability for the current year, whichever is smaller) to avoid underpayment penalties.

Question 17

Current year foreign taxes paid exceed the ceiling based on U.S. tax attributable to foreign source income. These excess foreign tax credits
A)are lost.
B)can be carried forward ten years only.
C)can be carried back one year and then carried forward ten years.
D)can be carried back one year and then carried forward twenty years.

Accepted Answer

Excess foreign tax credits can be carried back one year and then carried forward for up to ten years.

Question 18

Runway Corporation has $2 million of gross receipts in the preceding year. For purposes of the disabled access credit, what is the maximum number of full-time employees the corporation can have in the preceding year?
A)10
B)15
C)20
D)30

Accepted Answer

The answer of Runway Corporation has $2 million of gross...

Question 19

Octo Corp. purchases a building for use in its business at a cost of $100,000. The building was built in 1930 and needs substantantial work so it can be used. Octo spends $150,000 on qualifying renovations. Octo will earn a rehabilitation credit of
A)$15,000.
B)$25,000.
C)$5,000.
D)$30,000.

Accepted Answer

The answer of Octo Corp. purchases a building for use...

Question 20

ChocoHealth Inc. is developing new chocolate products providing abundant health benefits at low calorie counts. For the past three years, it spent an average of $500,000 per year on research. ChocoHealth has spent $900,000 on research. The company has elected the simplified credit. For the current year, it will earn a research credit of
A)$54,000.
B)$126,000.
C)$80,000.
D)$91,000.

Accepted Answer

D)[$900,000 - (50% × $500,000)× .14]= $91,000.

Quiz 14: Special Tax Computation Methods, Tax Credits, and Payment of Tax

A taxpayer will be ineligible for the earned income credit if he or she has disqualified investment income of more than $3,350 in 2014. Disqualified income includes all the following except

Which of the following statements is incorrect regarding qualifying criteria for the health insurance premium tax credit?

Kors Corporation has 30 employees and $5 million of gross receipts. Kors spends $15,000 for qualified structural improvements for access for the disabled. The disabled access credit is

The general business credit includes all of the following with the exception of

Layla earned $20,000 of general business credits from her sole proprietorship. Her regular tax liability is $45,000, and her tentative minimum tax is $49,000. During the current year Layla will apply general business credits of

Dwayne has general business credits totaling $30,000 before limitation. His regular tax liability is $83,000 and his tentative minimum tax is $79,000. What amount of general business credit can Dwayne take this year?

Which one of the following is a refundable credit?

In 2014 Rita is divorced with one child. She has AGI of $19,500 resulting in a federal income tax liability of $250 and an earned income credit of $3,038. She has had $550 of federal income taxes withheld from her pay. Rita will receive a federal income refund of

Individuals without children are eligible for the earned income credit if they meet all the following conditions except

The general business credit may not exceed the net income tax minus the greater of the tentative minimum tax or

Which of the following expenditures will qualify as a research expenditure for purposes of the research credit?

If a taxpayer's AGI is greater than $150,000, no penalty will be imposed if the taxpayer pays estimated tax payments in 2014 equal to what percentage of 2013's income tax liability?

Annie has taxable income of $100,000, a regular tax liability of $21,176, a positive AMT adjustment due to limitations on itemized deductions of $20,000, and tax preferences of $25,000 in 2014. Annie is single and takes a $3,950 personal exemption for herself only. What is Annie's AMT for 2014?

An individual with AGI equal to or less than $150,000 in the prior year may generally avoid penalties for underpayment of estimated tax in each of the following cases with the exception of

With respect to estimated tax payments for a taxpayer with AGI of $150,000 or lower in the prior year, all of the following are generally true with the exception of

Current year foreign taxes paid exceed the ceiling based on U.S. tax attributable to foreign source income. These excess foreign tax credits

Runway Corporation has $2 million of gross receipts in the preceding year. For purposes of the disabled access credit, what is the maximum number of full-time employees the corporation can have in the preceding year?

Octo Corp. purchases a building for use in its business at a cost of $100,000. The building was built in 1930 and needs substantantial work so it can be used. Octo spends $150,000 on qualifying renovations. Octo will earn a rehabilitation credit of