Question 1

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

If the tentative minimum tax is $42,400, the regular tax of $45,890 is higher, so the minimum tax credit can be used to reduce the regular tax to $42,400.

Question 2

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

Accepted Answer

The exemption phaseout can reduce a taxpayer's exemption amount to zero. This means that for taxpayers subject to the phaseout, they will not receive the full benefit of their exemptions. Option A is false because the phaseout applies to all taxpayers regardless of their marginal income tax rate. Option C is also false because the phaseout applies to all taxpayers, whether they use the standard deduction or elect to itemize deductions.

Question 3

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,...

Question 4

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 by the original due date of the tax return, which is typically April 15 for calendar-year individual taxpayers. If the extension request is not filed by the original due date, the taxpayer may be subject to penalties and interest on any unpaid tax.

Question 5

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 to avoid penalties and interest charges. These payments are based on the estimated amount of income and self-employment earnings for the year. The exact amount of tax owed is calculated and paid when the tax return is filed.

Question 6

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 7

Determine Mr. Smith's 2013 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, 2011. Mr. Smith has not remarried and maintains a home for one dependent child.
e. Mrs. Smith died on April 3, 2012. Mr. Smith has not remarried and has no dependent children.
f. Mr. and Mrs. Smith were legally divorced on September 10, 2009. Mr. Smith has not remarried and maintains a home for his two dependent children.

Accepted Answer

The answer of Determine Mr. Smith's 2013 filing status in...

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 overall limitation on itemized deductions is true?

Accepted Answer

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

Question 10

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 11

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 12

Mr. and Mrs. Reece couldn't complete their 2013 Form 1040 before April 15, 2014. 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. However, they must pay the $700 estimated balance of tax due with the extension request to avoid penalties and interest. If they fail to file and pay by the extended due date, they may be subject to additional penalties and interest. Choice A is incorrect because penalties are assessed for failure to file and failure to pay, not just failure to file. Choice B is incorrect because an extension only extends the filing date, not the payment date, and interest and penalties may still apply if the balance due is not paid by April 15. Choice D is incorrect because at least one of the statements is true.

Question 13

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 either prepay 90% of his current year tax liability or 100% (110% for high-income taxpayers) of his prior year tax liability. 90% of $65,440 is $58,896, which is greater than his prior year tax liability of $51,650. Therefore, the minimum amount of current year tax Mr. Tyker had to prepay is $58,896.

Quiz 14: The Individual Tax Formula