Question 1

In describing FICA taxes,which (if any)of the following statements is incorrect?

Accepted Answer

The base amounts for the Social Security and Medicare portions are not the same; Social Security has a wage base limit, while Medicare does not.

Question 2

Rick spends $600,000 to build a qualified low-income housing project,which is placed in service on January 1,2010.He financed the project using his personal funds.What is the amount of the low-income housing credit that Rick may claim in 2010 (assuming a rate of 7.65%)? What is the total amount of the credit that Rick may claim as a result of the $600,000 expenditure?

Accepted Answer

The answer of Rick spends $600,000 to build a qualified...

Question 3

In May 2006,Alma incurred qualifying rehabilitation expenditures of $400,000 on a certified historic structure and properly claimed the tax credit for rehabilitation expenditures.In March 2010,she sold the building at a loss.Calculate the rehabilitation expenditures credit recapture that she must report in 2010.

Accepted Answer

The answer of In May 2006,Alma incurred qualifying rehabilitation expenditures...

Question 4

An employer calculates the amount of income tax withheld from salary or wages based on the information an employee provides on the following form:

Accepted Answer

The employer calculates the amount of income tax withheld from salary or wages based on the information an employee provides on Form W-4, also known as the Employee's Withholding Certificate. This form is used to determine how much federal income tax should be withheld from an employee's paycheck. Form W-2 is a statement of an employee's earnings and taxes withheld during the year, which is provided to the employee at the end of the year for tax purposes. Form W-3 is a transmittal form used to summarize Form W-2 information for the Social Security Administration. Form 941 is a quarterly tax return that employers use to report wages, tips, and other compensation paid to employees, as well as the amount of federal income tax, Social Security tax, and Medicare tax withheld from those payments. None of these forms are used to calculate the amount of income tax withheld from an employee's paycheck.

Question 5

During 2010,Eleanor earns $146,000 in wages as an employee of an accounting firm.She also earns $26,000 in gross income from an outside consulting service she operates.Deductible expenses paid in connection with the consulting service amount to $6,000.Eleanor also has a recognized long-term capital gain of $1,000 from the sale of a stock investment.She must pay a self-employment tax on:

Accepted Answer

Eleanor must pay a self-employment tax on the income earned from her outside consulting service. She earned $26,000 in gross income from the consulting service and deducted $6,000 in expenses, leaving a net income of $20,000. Self-employment tax is calculated as 15.3% of net income, so Eleanor must pay 15.3% of $20,000, which is $3,060. Therefore, option B is the correct answer as it is the only option that is close to the amount Eleanor is required to pay.

Question 6

Bob and Sally are married,file a joint tax return,have AGI of $108,000,and have two children.Del is beginning her freshman year at State College during Fall 2010,and Owen is beginning his senior year at Southwest University during Fall 2010.Owen completed his junior year during the Spring semester of 2009 (i.e. ,he took a "leave of absence" during the 2009-2010 school year).Both Del and Owen are claimed as dependents on their parents' tax return.Del's qualifying tuition expenses and fees total $5,000 for the Fall semester,while Owen's qualifying tuition expenses were $6,100 for the Fall 2010 semester.Del's room and board costs were $3,200 for the Fall semester.Owen did not incur room and board costs since he lived with his aunt and uncle during the year.Full payment is made for the tuition and related expenses for both children at the beginning of each semester.In addition to the children's college expenses,Bob also spent $3,000 on professional education seminars during the year in order to maintain his license as a practicing dentist.Bob attended the seminars during July and August 2010.Compute the available education tax credits for Bob and Sally for 2010.

Accepted Answer

Bob and Sally can claim the American Opportunity Credit (AOC) for both Del and Owen's tuition expenses. The AOC is 100% of the first $2,000 of qualified education expenses and 25% of the next $2,000, for a maximum credit of $2,500 per year, per student.

For Del's expenses: 
Qualifying tuition expenses: $5,000 
AOC credit: $2,500

For Owen's expenses: 
Qualifying tuition expenses: $6,100 
AOC credit: $2,500

Bob can also claim the Lifetime Learning Credit (LLC) for his professional education expenses. The LLC is 20% of up to $10,000 of qualifying education expenses per year, per taxpayer.

For Bob's expenses: 
Qualifying education expenses: $3,000 
LLC credit: $600

Therefore, the total education credits available for Bob and Sally are:
AOC credit for Del: $2,500 
AOC credit for Owen: $2,500 
LLC credit for Bob: $600

Total education credits: $5,600 (C)

Question 7

Bradley has two college-age children,Clint,a freshman at State University,and Abigail,a junior at Northwest University.Both Clint and Abigail are full-time students.Clint's expenses during the 2010 fall semester are as follows: $2,400 tuition,$250 books and course materials,and $1,600 room and board.Abigail's expenses for the 2010 calendar year are as follows: $10,200 tuition,$1,200 books and course materials,and $3,600 room and board.Tuition and the applicable room and board costs are paid at the beginning of each semester.Bradley is married,files a joint tax return,claims both children as dependents,and has a combined AGI with his wife of $114,000 for 2010.Determine Bradley's available education tax credit for 2010.

Accepted Answer

The answer of Bradley has two college-age children,Clint,a freshman at...

Question 8

Pat generated self-employment income in 2010 of $70,000.The self-employment tax is:

Accepted Answer

The self-employment tax rate in 2010 was 15.3%. The Social Security portion (12.4%) applies to the first $106,800, and the Medicare portion (2.9%) applies to all income. For $70,000, the tax is $70,000 * 15.3% = $10,710. However, only 92.35% of self-employment income is subject to the tax, so $70,000 * 92.35% * 15.3% = $9,890.69.

Question 9

Which of the following correctly reflects current rules regarding estimated tax payments for individuals?

Accepted Answer

The answer of Which of the following correctly reflects current...

Question 10

Discuss the treatment of unused general business credits.

Accepted Answer

The answer of Discuss the treatment of unused general business...

Question 11

In May 2010,Blue Corporation hired Camilla,Jolene,and Tyrone,all of whom are certified as long-term family assistance recipients.Each employee is paid $12,000 during 2010.Camilla and Tyrone continued to work for Blue Corporation in 2011,earning $14,000 each.Blue hired no additional employees during 2011.

Accepted Answer

The answer of In May 2010,Blue Corporation hired Camilla,Jolene,and Tyrone,all...

Question 12

Allan has a tentative general business credit of $220,000 for the current year.His net regular tax liability before the general business credit is $250,000,and his tentative minimum tax is $200,000.Compute Allan's allowable general business credit for the year.

Accepted Answer

The answer of Allan has a tentative general business credit...

Question 13

Golden Corporation is an eligible small business for purposes of the disabled access credit.During the year,Golden makes the following expenditures on a structure originally placed in service in 1988.
  In addition,$8,000 was expended by Golden on a building originally placed in service in the current year to ensure easy accessibility by disabled individuals.Calculate the amount of the disabled access credit available to Golden Corporation.

Accepted Answer

The answer of Golden Corporation is an eligible small business...

Question 14

Dabney and Nancy are married,both gainfully employed,and have two children who are 3 and 6 years old.Dabney's salary is $35,000 while Nancy's salary is $40,000.During the year,they spend $7,000 for child care expenses that are required so both of them can work outside of the home.Calculate the credit for child and dependent care expenses.

Accepted Answer

The answer of Dabney and Nancy are married,both gainfully employed,and...

Question 15

The ceiling amounts and percentages for 2010 for the two portions of the self-employment tax are: Social Security portion Medicare portion

Accepted Answer

The Social Security portion has a ceiling amount of $106,800 and a percentage of 12.4%. The Medicare portion has no ceiling amount and a percentage of 2.9%. Option C is the only choice that accurately reflects these amounts. Option A and B have the correct ceiling amount for the Social Security portion but incorrect percentages. Option D has incorrect information for both portions. Therefore, the best choice is C.

Question 16

Summer Corporation's business is international in scope and is subject to income taxes in several countries.Summer's earnings and income taxes paid in the relevant foreign countries are:
  If Summer Corporation's worldwide income subject to taxation in the United States is $2,400,000 and the U.S.income tax due prior to the foreign tax credit is $816,000,compute the allowable foreign tax credit.If,instead,the total foreign income taxes paid were $550,000,compute the allowable foreign tax credit.

Accepted Answer

The answer of Summer Corporation's business is international in scope...

Question 17

Susan generated $55,000 of net earnings from the conduct of a tax preparation business that she operated during the tax-filing season.She also received wages of $60,000 from her full-time job.Compute the self-employment taxes due for 2010.

Accepted Answer

The answer of Susan generated $55,000 of net earnings from...

Question 18

Phil and Audrey,husband and wife,are both employed by Laurel Corporation.Phil earns $108,000 in salary in 2010,and Audrey earns $70,000.How much FICA tax must they pay for 2010?

Accepted Answer

The answer of Phil and Audrey,husband and wife,are both employed...

Question 19

Which of the following statements is true regarding the education tax credits?

Accepted Answer

The answer of Which of the following statements is true...

Question 20

Realizing that providing for a comfortable retirement is up to them,Jim and Julie commit to making regular contributions to their IRAs,beginning this year.Consequently,they each make a $2,000 contribution to their traditional IRA.If their AGI is $37,000 on their joint return,what is the amount of their credit for certain retirement plan contributions?

Accepted Answer

The Saver's Credit allows a credit of up to 50% of contributions to retirement accounts for low to moderate-income earners. With an AGI of $37,000, Jim and Julie qualify for a 10% credit rate on their $4,000 total contribution, resulting in a $400 credit.

Quiz 12: Tax Credits and Payments

In describing FICA taxes,which (if any) of the following statements is incorrect?