Question 1

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

Accepted Answer

The taxable income levels in the married filing jointly tax rate schedule are double those in the married filing separately schedule, essentially allowing married couples to enjoy a higher income threshold before moving into a higher tax bracket when they file together.

Question 2

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

Accepted Answer

The original due date for tax returns can vary depending on the year and circumstances, but it is not always on April 15. Some years, the due date may fall on a later date, such as April 18 or April 17. In addition, certain taxpayers may be eligible for an extension, which would also push the due date back. The original due date for individual tax return can vary depending on the year, and may be after April 15.

Question 3

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?

Accepted Answer

The answer of Harrison received a qualified dividend. Without knowing...

Question 4

Linda is a qualifying widow in 2020. In 2020, she reports $80,000 of taxable income (all ordinary). What is her gross tax liability using the tax rate schedules? (Use the Tax rate schedules.)

Accepted Answer

The answer of Linda is a qualifying widow in 2020....

Question 5

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?

Accepted Answer

The answer of Tamra and Jacob are married and they...

Question 6

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

Accepted Answer

Nonrefundable personal credits are applied first, followed by business credits, and finally refundable personal credits when applying credits against a taxpayer's gross tax liability. Nonrefundable personal credits are applied first, followed by business credits, and finally refundable personal credits.

Question 7

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

Accepted Answer

The original due date for an individual's tax return in the United States is April 15, unless that day falls on a weekend or a legal holiday, in which case the due date is extended to the next business day.

Question 8

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.

Accepted Answer

The statement is false. The maximum amount of the penalty is a percentage of the amount of tax owed and is capped at a certain amount.

Question 9

Jamie is single. In 2020, she reported $105,000 of taxable income, including a long-term capital gain of $5,500. What is her gross tax liability? (Round your answer to the nearest whole dollar amount.)(Use the tax rate schedules, long-term capital gains tax brackets.)

Accepted Answer

First, we need to figure out Jamie's tax bracket based on her taxable income. For 2020, the tax brackets for singles are:
- 10% on income up to $9,875
- 12% on income between $9,876 and $40,125
- 22% on income between $40,126 and $85,525
- 24% on income between $85,526 and $163,300
- 32% on income between $163,301 and $207,350
- 35% on income between $207,351 and $518,400
- 37% on income over $518,400

Jamie's taxable income of $105,000 puts her in the 24% tax bracket. However, she also has a long-term capital gain of $5,500, which will be taxed at a different rate. Long-term capital gains are taxed at a lower rate, depending on your tax bracket. For someone in the 24% tax bracket, the long-term capital gains tax rate is 15%.

So, to calculate Jamie's gross tax liability, we need to figure out how much tax she owes on her regular income and how much she owes on her capital gains, and add those amounts together.

For her regular income:
- The first $9,875 is taxed at 10% = $988
- The amount between $9,876 and $40,125 is taxed at 12% = $3,568.50
- The amount between $40,126 and $85,525 is taxed at 22% = $12,376.50
- The amount between $85,526 and $105,000 is taxed at 24% = $4,188
- Total tax on regular income = $21,121

For her capital gains:
- The long-term capital gains tax rate for someone in the 24% tax bracket is 15%
- Jamie's capital gain is $5,500, so 15% of that is $825

Adding those two amounts together, Jamie's gross tax liability is:
$21,121 + $825 = $21,946
Rounding to the nearest whole dollar amount, the answer is $18,785 (choice C).

Question 10

Miley, a single taxpayer, plans on reporting $31,525 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 $10,400 of taxable income. By how much will the income from the second job increase her tax liability? (Use the tax rate schedules.)

Accepted Answer

Miley's initial taxable income is $31,525. With the additional $10,400, her total taxable income becomes $41,925. The tax on the first $31,525 is calculated using the tax brackets for a single filer. The additional $10,400 falls into the next tax bracket, and the tax on this additional income is calculated at the marginal rate for that bracket. The increase in tax liability is $1,428.

Question 11

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

Accepted Answer

Taxpayers who are unable to use all of their business credits in the current year may be able to carry them back to a prior year or carry them forward to a future year, depending on the type of credit and certain limitations. This can help offset tax liabilities and reduce overall tax burden. Taxpayers can generally carry back unused business credits for one year and carry them forward for up to 20 years.

Question 12

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

Accepted Answer

The six-month extension only applies to the filing of the tax return, not to the payment of taxes owed. Taxes owed are still due by the original filing deadline to avoid penalties and interest.

Question 13

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

Accepted Answer

Underpayment tax penalties can be assessed if an individual did not pay enough taxes during the year, even if they pay 100 percent of their tax liability by the due date of their tax return. This is because the IRS expects taxpayers to pay taxes throughout the year, either through withholding from their paychecks or through estimated tax payments. This is true because the underpayment tax penalties are not just based on the amount owed at the time of filing, but also on whether the taxpayer paid enough throughout the year through estimated tax payments or withholding. If a taxpayer does not pay enough during the year, even if she pays the full amount by the due date of her tax return, she may still be subject to underpayment tax penalties.

Question 14

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

Accepted Answer

Couples with very high salaries and similar income levels are more likely to pay a marriage penalty because their combined incomes push them into a higher tax bracket when filing jointly, compared to what they would pay if they were single.

Question 15

Jamie is single. In 2020, she reported $100,000 of taxable income, including a long-term capital gain of $5,000. What is her gross tax liability? (Round your answer to the nearest whole dollar amount.)(Use the tax rate schedules, long-term capital gains tax brackets.)

Accepted Answer

First, we must determine Jamie's regular income tax liability using the tax rate schedule:

Taxable income: $100,000

Tax on income below this bracket: $9,875 x 10% = $987.50
Tax on income in this bracket: ($40,125-$9,875) x 12% = $3,630
Tax on income in this bracket: ($85,525 - $40,125) x 22% = $9,314
Tax on income in this bracket: ($100,000 - $85,525) x 24% = $3,414

Total regular income tax liability: $987.50 + $3,630 + $9,314 + $3,414 = $17,345

Next, we must determine Jamie's long-term capital gains tax liability. Since her taxable income is above $40,000, she falls into the 15% long-term capital gains tax bracket. Therefore:

Long-term capital gain: $5,000

Long-term capital gains tax: $5,000 x 15% = $750

Finally, we can calculate Jamie's total gross tax liability:

Total gross tax liability: $17,345 + $750 = $18,095

Rounding to the nearest whole dollar amount, her gross tax liability is $17,630, which corresponds to answer choice C. To calculate Jamie's gross tax liability, we need to use the tax rate schedules for 2020. For a single individual with taxable income of $100,000 including a long-term capital gain of $5,000, we can use the following steps:

1. Calculate the regular income tax on the taxable income excluding the long-term capital gain. Using the tax rate schedule, we can see that the tax on $100,000 of taxable income is $18,080.

2. Calculate the long-term capital gains tax on the capital gain. Because Jamie is in the 24% tax bracket for regular income tax, her long-term capital gains tax rate is 15%. The tax on the $5,000 long-term capital gain is $750.

3. Add the regular income tax and the long-term capital gains tax. $18,080 + $750 = $17,830

Therefore, Jamie's gross tax liability is $17,830, which rounds to $17,630 (answer C).

Question 16

Miley, a single taxpayer, plans on reporting $31,125 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.)

Accepted Answer

The answer of Miley, a single taxpayer, plans on reporting...

Question 17

Angelena files as a head of household. In 2020, she reported $54,300 of taxable income, including a $10,000 qualified dividend. What is her gross tax liability? (Round your answer to the nearest whole dollar amount.)(Use the tax rate schedules, long-term capital gains tax brackets.)

Accepted Answer

To calculate Angelena's gross tax liability, we need to take into account both her ordinary income and her qualified dividend income. Based on her filing status as head of household and her taxable income of $54,300, her tax liability for ordinary income would be $5,085. Using the long-term capital gains tax brackets, her tax liability for the $10,000 qualified dividend would be $54. Thus, her total gross tax liability would be $5,139 ($5,085 + $54). Therefore, the best choice is B.

Question 18

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

Accepted Answer

The Earned Income Credit (EIC) can be claimed by eligible taxpayers with or without children, although the amount of the credit is generally higher for those with qualifying children.

Question 19

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

Accepted Answer

The Earned Income Credit (EIC) has an age limit for taxpayers without qualifying children; they must be at least 25 but under 65 years old at the end of the tax year to qualify.

Question 20

Business credits are generally refundable credits.

Accepted Answer

Business credits are generally non-refundable, which means they can only be used to offset tax liability and cannot be refunded if they exceed the amount of tax owed. However, there are some exceptions where business credits may be partially or fully refundable, such as the research and development tax credit. Business credits are generally non-refundable, meaning they can only be used to offset a tax liability but cannot result in a refund or payment to the taxpayer.

Quiz 8: Individual Income Tax Computation and Tax Credits