Question 1

Mr. and Mrs. Reece couldn't complete their 2016 Form 1040 before April 15, 2017. They estimate that they will have a $700 balance of tax due with the return. Which of the following statement is true?

Accepted Answer

The Reeces can file an extension request by April 15 to extend the filing date for six months without penalty. They must pay the $700 estimated balance of tax due with the extension request.

Question 2

Last year, Mr. Tyker's AGI was $182,800, and his total tax liability was $51,650. This year, his total tax liability is $65,440. Compute the minimum amount of current year tax that Mr. Tyker had to prepay (withholding and estimated payments) to avoid an underpayment penalty.

Accepted Answer

To avoid an underpayment penalty, Mr. Tyker must prepay either 100% of his previous year's tax liability (which was $51,650) or 90% of his current year's tax liability (which is $65,440). Since the question asks for the minimum amount of current year tax that Mr. Tyker had to prepay, we can use the 90% rule.

90% of this year's tax liability ($65,440) is $58,896. Therefore, Mr. Tyker had to prepay at least $58,896 to avoid an underpayment penalty. Since none of the answer choices are exactly $58,896, we must choose the closest one. Choice C, $56,815, is the closest to $58,896. This means that Mr. Tyker had to prepay at least $56,815 to avoid an underpayment penalty.

Question 3

Which of the following statements regarding tax payments is true?

Accepted Answer

Sole proprietors are required to make quarterly estimated payments of both income tax and self-employment tax. These payments are based on the expected income and self-employment earnings for the year and are used to avoid underpayment penalties when the tax return is filed.

Question 4

Which of the following statements concerning the overall limitation on itemized deductions is true?

Accepted Answer

The answer of Which of the following statements concerning the...

Question 5

Eileen, a single individual, had $125,000 taxable income. Compute her income tax assuming that:
a. Taxable income includes no capital gains.
b. Taxable income includes $14,000 capital gain eligible for the 15% preferential rate.

Accepted Answer

The answer of Eileen, a single individual, had $125,000 taxable...

Question 6

Determine Mr. Smith's 2016 filing status in each of the following independent cases.
a. Mr. Smith and Mrs. Smith were legally divorced on December 1. Mr. Smith has not remarried and has no dependent children.
b. Mr. Smith and the first Mrs. Smith were legally divorced on February 10. Mr. Smith remarried the second Mrs. Smith on December 5. He has no dependent children.
c. Mrs. Smith dies on June 22. Mr. Smith has not remarried and has no dependent children.
d. Mrs. Smith died on November 1, 2014. Mr. Smith has not remarried and maintains a home for one dependent child.
e. Mrs. Smith died on April 3, 2015. Mr. Smith has not remarried and has no dependent children.
f. Mr. and Mrs. Smith were legally divorced on September 10, 2013. Mr. Smith has not remarried and maintains a home for his two dependent children.

Accepted Answer

The answer of Determine Mr. Smith's 2016 filing status in...

Question 7

Mr. and Mrs. Bennett file a joint tax return. Determine if each of the following unmarried individuals is either a qualifying child or a qualifying relative for whom the couple can claim an exemption.
a. Son Alex, age 22, lives in his parents' home and works fulltime as a tax accountant. Alex is self-supporting except for the fact that he does not pay rent to his parents.
b. Daughter Samantha, age 20, is a full-time college student. Samantha lives in a dormitory during the school year, but her parents' home is her permanent residence and they provide 100% of her financial support.
c. Mr. Bennett's brother Max is 42 years old and mentally handicapped. Max lives in a privately operated group home, and Mr. and Mrs. Bennett provide 100% of his financial support. Max has no gross income.
d. Mrs. Bennett's mother, Vera, age 67, lives in a retirement community. Mr. and Mrs. Bennett provide about 75% of her financial support. Vera earned $5,000 this year as a part-time receptionist.

Accepted Answer

The answer of Mr. and Mrs. Bennett file a joint...

Question 8

Which of the following statements concerning extensions of time to file an individual tax return is true?

Accepted Answer

The extension of time to file an individual tax return indeed extends the deadline for filing the return, but it does not extend the deadline for paying any taxes owed. Taxes are still due by the original filing deadline, typically April 15 for most taxpayers.

Question 9

Which of the following statements concerning the exemption phaseout is true?

Accepted Answer

The exemption phaseout reduces a taxpayer's exemption amount if their adjusted gross income exceeds a certain threshold. It can ultimately reduce the exemption amount to zero. Therefore, statement B is true. Statements A and C are false, as the phaseout applies to taxpayers with certain income levels regardless of their marginal tax rate or deduction method. Statement D is incorrect as only statements A and C are false.

Question 10

Alice Grim, a single taxpayer, has $219,000 taxable income, which includes a $20,000 capital gain taxed at 15%. Her alternative minimum taxable income in excess of her exemption amount is $237,400. Compute Alice's regular tax, AMT, and total tax.

Accepted Answer

The answer of Alice Grim, a single taxpayer, has $219,000...

Question 11

Ms. Kilo's regular income tax before credits on her Form 1040 is $45,890, and she has a $5,700 minimum tax credit from a previous year. Which of the following statements is true?

Accepted Answer

The answer of Ms. Kilo's regular income tax before credits...

Question 12

Which of the following statements concerning extensions of time to file an individual tax return is false?

Accepted Answer

An extension request must be filed before the original due date of the tax return, not necessarily before the end of the taxable year.

Question 13

Last year, Mr. Corbett's AGI was $141,000, and his total tax liability was $33,650. This year, his total tax liability is $35,290. Compute the minimum amount of current year tax that Mr. Corbett had to prepay (withholding and estimated payments) to avoid an underpayment penalty.

Accepted Answer

The answer of Last year, Mr. Corbett's AGI was $141,000,...

Quiz 14: The Individual Tax Formula