Deck 7: Individual Income Tax Computation and Tax Credits

Question 1

Tax rate schedules are provided for use by (relatively) higher income taxpayers while the tax tables are provided for use by (relatively) lower income taxpayers.

Answer 1

True

Question 2

The kiddie tax does not apply to children over 24 years old at the end of the tax year.

Answer 2

True

Question 3

A marriage penalty occurs when a couple pays more taxes by filing a joint tax return than they would have paid had they filed married filing separate returns.

Answer 3

False

Question 4

The alternative minimum tax is the AMT base multiplied by the AMT rate.

Question 5

The tax rate schedules are set up to tax lower levels of income at higher tax rates than higher levels of income.

Question 6

Both the width (or range) of the tax brackets (the amount of income taxed at a particular rate) in the tax rate schedules and the range of the tax rates in the tax rate schedules (the difference between the lowest tax rate and the highest tax rate) vary by filing status.

Question 7

Taxpayers are not allowed to deduct personal or dependency exemptions for alternative minimum tax purposes.

Question 8

The alternative minimum tax system requires taxpayers to apply an alternative tax rate on the regular income tax base to determine the amount of the alternative minimum tax.

Question 9

For alternative minimum tax purposes, taxpayers are allowed to deduct state income taxes but are not allowed to deduct charitable contributions.

Question 10

Regular taxable income is the starting point for determining the alternative minimum tax.

Question 11

The AMT exemption amount is phased-out for high income taxpayers.

Question 12

If a married couple has one primary breadwinner, filing a joint return will likely result in a marriage penalty.

Question 13

Long-term capital gains are taxed at the stated AMT rate for purposes of the alternative minimum tax.

Question 14

In certain circumstances a child with very little income may have their income taxed at the parents' marginal tax rate.

Question 15

Generally, income from an active trade or business is subject to the 3.8% Net Investment Income tax.

Question 16

All else equal, a reduction in regular income tax rates would require more taxpayers to pay the alternative minimum tax.

Question 17

Long-term capital gains, dividends, and taxable interest income are all taxed at preferential rates.

Question 18

All capital gains are taxed at preferential rates.

Question 19

If both spouses of a married couple earn roughly equivalent wages, the couple is likely to pay a marriage penalty due to the nature of the tax rate schedules.

Question 20

For alternative minimum tax purposes, taxpayers are required to add back the regular tax standard deduction amount for their filing status whether or not they itemized deductions for regular tax purposes.

Question 21

Alton reported net income from his sole proprietorship of $90,000. To determine his self employment tax, he would multiply $90,000 by the self-employment tax rate.

Question 22

Tax credits reduce a taxpayer's taxable income dollar for dollar.

Question 23

Employees are not allowed to deduct FICA taxes they pay.

Question 24

Employee status is always better than independent contractor status for a taxpayer because the employee is responsible for paying the employee portion of the FICA taxes.

Question 25

Self-employed taxpayers are allowed to deduct the full amount of the self-employment taxes they pay.

Question 26

Parents may claim a child tax credit for a dependent child who is 22 years of age at the end of the year if the child is a full-time student.

Question 27

Employees must pay both Social Security tax and Medicare tax on all of their wages no matter the amount of their wages.

Question 28

The lifetime learning credit can be used toward the cost of any course of instruction to acquire or improve a taxpayer's job skills, no matter the age of the taxpayer.

Question 29

For married couples, the Medicare tax is based on the couple's combined wages.

Question 30

Parents may claim a child and dependent care credit for expenses incurred in providing for their dependents while the parents work as long as the children are over age 14 and under age 20 at year end.

Question 31

The child and dependent care credit entitles qualifying taxpayers to a credit equal to the full amount of qualified expenses.

Question 32

Employees are allowed to deduct a portion of the FICA taxes they pay.

Question 33

The American opportunity credit is available only for those students who are in their first or second year of postsecondary education.

Question 34

Katlyn reported $300 of net income from her sole proprietorship. She is not required to pay self-employment tax.

Question 35

For married couples, the Social Security wage base limitation applies separately to each spouse.

Question 36

Due to the alternative minimum tax rate structure, timing tax planning strategies are not effective under the alternative minimum tax system.

Question 37

The child tax credit is subject to phase-out based on the taxpayer's AGI.

Question 38

John and Sally pay Janet (Sally's older sister) to watch John and Sally's child Dexter during the day. Janet cares for Dexter in her home. John and Sally may claim a child and dependent care credit based on the amount they pay Janet to care for Dexter.

Question 39

All else equal, taxpayers are more likely to be classified as employees rather than independent contractors if they are allowed to determine their own working hours and work without frequent oversight.

Question 40

The American opportunity credit and lifetime learning credit are available to all taxpayers regardless of their income level.

Question 41

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?

A) The dividend will be taxed at a 15% tax rate.
B) The dividend will be taxed at a 20% tax rate.
C) The entire dividend will be taxed at either 15% or the entire dividend will be taxed at 20% depending on Harrison's marginal ordinary income tax rate.
D) None of these.

Question 42

Miley, a single taxpayer, plans on reporting $27,900 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)?

A) $1,000
B) $1,500
C) $1,600
D) $2,500

Question 43

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

Question 44

Business credits are generally refundable credits.

Question 45

Angelena files as a head of household. In 2014, she reported $50,000 of taxable income, including a $10,000 qualified dividend. What is her gross tax liability, rounded to the nearest whole dollar amount (use the tax rate schedules)?

A) $5,353
B) $5,443
C) $7,500
D) $6,913

Question 46

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?

A) Tamra and Jacob likely pay no tax marriage penalty nor receive a tax marriage benefit.
B) Tamra and Jacob likely pay a tax marriage penalty.
C) Tamra and Jacob likely receive a tax marriage benefit.
D) Tamra and Jacob likely will pay a tax marriage penalty and receive a tax marriage benefit.

Question 47

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.

Question 48

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

A) the same as
B) double
C) half the amount of
D) None of these

Question 49

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

Question 50

Jamie is single. In 2014, she reported $100,000 of taxable income, including a long-term capital gain of $5,000. What is her gross tax liability, rounded to the nearest whole dollar amount (use the tax rate schedules)?

A) $22,576
B) $21,176
C) $20,526
D) $15,000

Question 51

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

Question 52

Which of the following is not a taxpayer filing status for purposes of determining the appropriate tax rate schedule?

A) Head of Household
B) Qualifying Widow or Widower
C) Married Filing Separately
D) Single
E) All of these are taxpayer filing statuses

Question 53

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

Question 54

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

Question 55

Linda is a qualifying widow in 2014. In 2014, she reported $75,000 of taxable income (all ordinary). What is her gross tax liability using the tax rate schedules?

A) $10,463
B) $14,606
C) $14,679
D) $13,163

Question 56

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

Question 57

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

A) Stephanie and Mitch likely pay no tax marriage penalty nor receive a tax marriage benefit.
B) Stephanie and Mitch likely pay a tax marriage penalty.
C) Stephanie and Mitch likely receive a tax marriage benefit.
D) Stephanie and Mitch likely will pay a tax marriage penalty and receive a tax marriage benefit.

Question 58

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

Question 59

The earned income credit is sometimes referred to as a negative income tax.

Question 60

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

Question 61

In 2014, Maia (who files as a head of household) reported regular taxable income of $115,000. She itemized her deductions, deducting $8,000 in charitable contributions and $3,000 in state income taxes. She claimed exemptions for herself and her son, Hermes, ($3,900 each). What is Maia's alternative minimum taxable income?

A) $118,000
B) $126,000
C) $133,900
D) $125,900

Question 62

Which of the following items is not added back to regular taxable income in computing alternative minimum taxable income?

A) Home mortgage interest expense
B) Real property taxes
C) Tax exempt interest from a private activity bond issued in 2007
D) Miscellaneous itemized deductions in excess of the 2% floor

Question 63

Which of the following is not typical of taxpayers who are most likely affected by the AMT?

A) Have many dependents
B) Pay high state income tax
C) Pay high property taxes
D) Have relatively low capital gains

Question 64

Allen Green is a single taxpayer with an AGI (and modified AGI) of $210,000, which includes $170,000 of salary, $25,000 of interest income, $10,000 of dividends, and $5,000 of long-term capital gains. What is Allen's Net Investment Income tax liability this year, rounded to the nearest whole dollar amount?

A) $2,465
B) $1,520
C) $570
D) $380

Question 65

The computation of the alternative minimum tax base begins with regular taxable income. Which of the following is not part of the formula for computing the alternative minimum tax base?

A) Subtract personal exemptions
B) Add the standard deduction amount if used for regular tax
C) Subtract the AMT exemption amount (if any)
D) Add back tax exempt interest from a private activity bond not issued in 2009 or 2010.

Question 66

Montague (age 15) is claimed as a dependent by his parents Matt and Mary. In 2014, Montague received $5,000 of qualified dividends and he received $800 from a part time job. What is his taxable income for 2014?

A) $0
B) $3,800
C) $4,650
D) $4,800

Question 67

Which of the following statements regarding the AMT exemption amounts is not true?

A) The amount of the exemption depends on the taxpayer's filing status.
B) The exemption amount is completely phased-out for high income taxpayers.
C) Taxpayers must choose whether they will claim the exemption or itemize deductions.
D) None of these statements is false (All of these statements are true).

Question 68

During 2014, Jasmine (age 12) received $2,400 from a corporate bond. She also received $600 from a savings account established for her by her parents. Jasmine lives with her parents and she is their dependent. Assuming her parents' marginal tax rate is 28%, what is Jasmine's gross tax liability?

A) $0
B) $100
C) $280
D) $380

Question 69

Assuming the kiddie tax applies, what amount of a child's income is subject to the kiddie tax?

A) All of it
B) All of the unearned income
C) The net unearned income
D) Taxable income less the standard deduction

Question 70

Which of the following statements accurately describes the alternative minimum tax rate(s)?

A) The top AMT marginal rate is higher than the top regular tax marginal tax rate.
B) The AMT rates represent a progressive tax rate structure.
C) The AMT rate is the same rate for all taxpayers.
D) None of these.

Question 71

Harmony reports a regular tax liability of $15,000 and tentative minimum tax of $17,000. Given just this information, what is her alternative minimum tax liability for the year?

A) $0
B) $2,000
C) $15,000
D) $17,000

Question 72

Asteria earned a $25,500 salary as an employee in 2014. How much should her employer have withheld from her paycheck for FICA taxes (rounded to the nearest whole dollar amount)?

A) $370
B) $1,581
C) $1,951
D) $3,902

Question 73

Hester (age 17) is claimed as a dependent by his parents, Charlton and Abigail. In 2014, Hester received $10,000 of qualified dividends and he received $6,000 from a part time job. What is his taxable income for 2014?

A) $16,000
B) $15,000
C) $9,800
D) $9,650

Question 74

The alternative minimum tax base is typically ______ the regular income tax base.

A) smaller than
B) about the same as
C) larger than
D) exactly the same as

Question 75

Hestia (age 17) is claimed as a dependent by her parents, Rhea and Chronus. In 2014, Hestia received $1,000 of interest income from a corporate bond that she owns. In addition, she has earned income of $200. What is her taxable income for 2014?

A) $0
B) $200
C) $650
D) $1,200

Question 76

Persephone has a regular tax liability of $12,475 and a tentative minimum tax of $11,500. Given just this information, what is her alternative minimum tax liability for the year?

A) $0
B) $11,500
C) $975
D) $12,475

Question 77

Which of the following is not a barrier to income shifting among family members?

A) The assignment of income doctrine
B) Net unearned income for children 18 and younger taxed at parents' marginal tax rates
C) Elimination of preferential tax rates (on dividends and long-term capital gains) for dependents
D) Two of these

Question 78

During 2014, Montoya (age 15) received $2,200 from a corporate bond. He also received $600 from a savings account established for him by his parents. Montoya lives with his parents and he is their dependent. What is Montoya's taxable income?

A) $0
B) $2,200
C) $2,800
D) $1,800

Question 79

The Olympians have three children. The kiddie tax applies to unearned income received by which of the following children?

A) Poseidon is a 20-year-old full-time student who does not support himself
B) Demeter, a 23-year-old full-time student who supports herself with a job at a grocery store
C) Zeus is 20 years old and not a student
D) Two of these.
E) None of these.

Question 80

Which of the following could explain why large number of taxpayers are subject to (or could become subject to) AMT?

A) Regular tax rates have decreased since the AMT was enacted
B) The AMT exemption amount is indexed to increase with inflation
C) Property values are decreasing
D) The personal and dependency exemption amounts are not increasing as fast as the AMT exemption is decreasing