Question 1

Happy,Sleepy,Grumpy,and Doc all did not make adequate estimated payments.Which of them will not owe underpayment penalties for 2017 given the following information?

Accepted Answer

The only way to avoid underpayment penalties is to meet one of the safe harbor rules, which includes paying at least 90% of your current year tax liability or 100% of your prior year tax liability (or 110% if your adjusted gross income is above a certain amount). Since Happy, Sleepy, and Grumpy did not make adequate estimated payments, we can assume they did not meet the safe harbor rule of paying at least 90% of their current year tax liability. However, Doc may have met the safe harbor rule by paying at least 100% of his prior year tax liability. It's impossible to know for sure without more information about their tax situations. Therefore, the only certain answer is E, as it includes the possibility that both Grumpy and Doc may not owe underpayment penalties.

Question 2

Which of the following statements regarding the earned income credit is true?

Accepted Answer

The earned income credit is a refundable credit, meaning that if the credit amount exceeds the taxpayer's tax liability, the excess amount will be refunded to the taxpayer. The credit amount is based on the taxpayer's earned income, with a higher credit amount for taxpayers with lower earned income. Therefore, it is possible that a taxpayer with more earned income may receive less credit than a taxpayer with less earned income. Option A is incorrect because the earned income credit is a refundable credit. Option C is partially correct because a 70-year-old taxpayer with no dependents can qualify for the credit if they meet certain income requirements. Option D is incorrect because the earned income credit is for taxpayers with earned income, not those with only investment income.

Question 3

Carolyn has an AGI of $38,000 (all from earned income),two qualifying children,and is filing as a head of household.What amount of earned income credit is she entitled to? (Exhibit 8-10 in the text)

Accepted Answer

The answer of Carolyn has an AGI of $38,000 (all...

Question 4

Which of the following statements regarding credits is correct?

Accepted Answer

Business credits that are generated in one year but are not utilized in that year can often be carried back to the previous year and then forward to future years, allowing businesses to apply these credits to reduce tax liability in other years.

Question 5

Why would a taxpayer file a tax return if not required to do so?

Accepted Answer

A taxpayer who is not required to file a tax return may choose to do so in order to claim a refund of taxes paid. If the taxpayer had taxes withheld from their pay or made estimated tax payments, they may have overpaid and can receive a refund by filing a tax return.

Question 6

Which of the following statements about estimated tax payments and underpayment penalties is true for individual taxpayers?

Accepted Answer

The answer of Which of the following statements about estimated...

Question 7

Which of the following does not affect the amount of the earned income credit?

Accepted Answer

The amount of the earned income credit is not affected by the amount of credit taken in previous years. It is determined by factors such as filing status, number of qualifying children, and the taxpayer's adjusted gross income (AGI), but not by the credit amount in previous years.

Question 8

Cassy reports a gross tax liability of $1,000.She also claims $400 of nonrefundable personal credits,$700 of refundable personal credits,and $200 of business credits.What is Cassy's tax refund or tax liability due after applying the credits?

Accepted Answer

The answer of Cassy reports a gross tax liability of...

Question 9

If an employer withholds taxes from an employee,in general,when are these taxes treated as paid to the IRS?

Accepted Answer

Taxes withheld from an employee are treated as paid evenly throughout the tax year, regardless of when during the year the money was actually withheld. This approach simplifies the tax payment process for both the IRS and the taxpayer.

Question 10

Taxpayers are not required to file a tax return unless their gross income passes a certain threshold.This threshold is generally the ________.

Accepted Answer

The threshold for taxpayers to file a tax return is generally when their gross income exceeds the sum of their applicable standard deduction and personal exemption amounts. Therefore, the correct answer is D.

Question 11

Which of the following represents the correct order in which credits are applied to gross tax liability (from first to last)?

Accepted Answer

Nonrefundable personal and business credits are applied first to reduce the tax liability to zero if possible. Any remaining liability can then be offset by refundable credits, which can result in a refund if they exceed the remaining tax liability.

Question 12

Which of the following is not true of the American opportunity credit?

Accepted Answer

This statement is false because a taxpayer can claim the American opportunity credit for their own qualifying educational expenses, not just for their dependents' expenses.

Question 13

Which of the following is not a true statement about the American opportunity credit (AOC)and lifetime learning credits (assume the 2016 rules apply for the qualified education expense deduction)?

Accepted Answer

Taxpayers may report both the AOC and lifetime learning credit on the same tax return, but not for the same expenses. They must claim one credit or the other for each qualifying expenditure.

Question 14

Which of the following statement(s)concerning estimated tax payments and underpayment penalties for individuals is (are)true?

Accepted Answer

All of these statements are true. Underpayment penalties are determined on a quarterly basis, estimated tax payment due dates are April 15, June 15, September 15, and January 15 (or the following business day if they fall on a weekend or holiday), and the amount of penalty depends on the amount of underpayment and other factors.

Question 15

Which of the following tax credits is fully refundable?

Accepted Answer

The only fully refundable tax credit is the earned income credit. The American opportunity credit and dependent care credit are partially refundable, but cannot exceed the amount of taxes owed.

Question 16

How could an individual obtain a business tax credit?

Accepted Answer

All of the given options are ways in which an individual could obtain a business tax credit. Self-employment activities can qualify for certain tax credits, flow-through from a partnership or S corporation can allow for the credits to flow through to the individual, and working overseas and obtaining a foreign tax credit can also result in a business tax credit. Therefore, choice D is the correct answer.

Question 17

Sheryl's AGI is $250,000.Her current tax liability is $52,068.Last year,her tax liability was $48,722.She will not owe underpayment penalties if her total estimated tax payments are at least which of the following (rounded)amounts (assume she makes the required payments each quarter)?

Accepted Answer

The answer of Sheryl's AGI is $250,000.Her current tax liability...

Question 18

If there is not enough gross tax liability to use the foreign tax credit,________.

Accepted Answer

The answer of If there is not enough gross tax...

Question 19

What happens if the taxpayer owes an underpayment penalty,but does not compute it on Form 2210?

Accepted Answer

If the taxpayer owes an underpayment penalty but does not compute it on Form 2210, the IRS will compute and assess the penalty. It is important for taxpayers to accurately calculate and report any penalties they may owe to avoid any additional charges or fees.

Question 20

Which of the following is not true of the lifetime learning credit?

Accepted Answer

The lifetime learning credit cannot be claimed for multiple dependents. It is limited to one credit per taxpayer for their own qualifying education expenses, such as tuition and fees for courses taken to improve skills or acquire new job-related skills.

Quiz 8: Individual Income Tax Computation and Tax Credits