TAX chapter 8

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

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

Linda is a qualifying widow in 2015. In 2015, she reports $80,000 of taxable income (all ordinary). What is her gross tax liability using the tax rate schedules? (Round your answer to the nearest whole number) A. $11,588 B. $14,323 C. $15,794 D. $15,923

Miley, a single taxpayer, plans on reporting $28,450 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

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.

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.

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.

Jamie is single. In 2015, 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. $19,671 B. $21,071 C. $20,421 D. $15,000

Angelena files as a head of household. In 2015, she reported $50,800 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. $5,463 B. $5,553 C. $7,620 D. $6,963

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

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. The assignment of income doctrine and net unearned income for children 18 and younger taxed at parents' marginal tax rates.

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. Demeter, a 23-year-old full-time student who supports herself with a job at a grocery store and Zeus is 20 years old and not a student. E. None of these.

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.

During 2015, Montoya (age 15) received $2,200 from a corporate bond. He also received $600 interest 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. $1,750

During 2015, Jasmine (age 12) received $2,400 from a corporate bond. She also received $600 interest 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. $105 C. $252 D. $357

Hestia (age 17) is claimed as a dependent by her parents, Rhea and Chronus. In 2015, 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 2015? A. $0 B. $150 C. $650 D. $1,200

Montague (age 15) is claimed as a dependent by his parents Matt and Mary. In 2015, Montague received $5,000 of qualified dividends and he received $800 from a part time job. What is his taxable income for 2015? A. $0 B. $3,900 C. $4,650 D. $4,750

Hester (age 17) is claimed as a dependent by his parents, Charlton and Abigail. In 2015, Hester received $10,000 of qualified dividends and he received $6,000 from a part time job. What is his taxable income for 2015? A. $16,000 B. $14,950 C. $9,700 D. $9,650

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

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

In 2015, 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, ($4,000 each). What is Maia's alternative minimum taxable income? A. $115,000 B. $128,000 C. $134,000 D. $126,000

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

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).

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

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

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.

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

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

Asteria earned a $25,500 salary as an employee in 2015. 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

Baker is single and earned $225,000 of salary as an employee in 2015. How much should his employer have withheld from his paycheck for FICA taxes (rounded to the nearest whole dollar amount)? A. $10,835 B. $10,247 C. $9,653 D. $15,888

Hera earned $175,000 salary in 2015. Her husband, Zeus, earned $100,000 salary in 2015. Hera and Zeus file a joint tax return. How much FICA taxes will they owe in 2015? A. $18,496 B. $17,760 C. $14,694 D. $4,213

Which of the following statements regarding FICA taxes is true? A. Low income employees are not required to pay FICA taxes. B. An employee who has two different employers during the year may be entitled to a tax credit for overpaid FICA taxes. C. The maximum amount of Medicare taxes an employee is required to pay is capped each year but the maximum amount of Social Security taxes is not. D. The wage base limit for Social Security taxes depends on the taxpayer's filing status

Which of the following suggests that a working taxpayer is an independent contractor rather than an employee? A. Works for more than one firm. B. May realize a loss from business activities. C. Sets own working hours. D. Works somewhere other than on employer premises. E. All of these suggest independent contractor status

Which of the following statements best describes the deductions independent contractors may claim for valid business expenses? A. for AGI deductions. B. from AGI deductions not subject to the two percent of AGI floor. C. from AGI deductions subject to a two percent of AGI floor. D. for AGI deductions limited to income from the business activities.

The wage base for which of the following taxes is capped? A. Federal income B. Social Security C. Medicare D. Alternative minimum

Which of the following statements regarding the self-employment tax is most accurate? A. The self-employment tax base is generally the taxpayer's net income from self-employment (usually net income from Schedule C). B . Taxpayers who report less than $600 of net income from self-employment (usually net income from Schedule C) are not required to pay self employment taxes. C. The self-employment tax base is net earnings from self employment which is less than net income from self-employment. D. The Social Security tax limit does not apply to self-employment taxes.

Which of the following best describes the manner in which self-employed taxpayers may deduct selfemployment taxes? A. Deduct employer portion from AGI. B. Deduct entire amount from AGI. C. Deduct employer portion for AGI. D. Deduct entire amount for AGI. E. No deduction.

For taxpayers who receive both salary as an employee and self-employment income as an independent contractor in the same year, which of the following statements regarding FICA and self-employment taxes is most accurate? A. The Social Security limit applies to the salary but not to the self-employment income. B. The Social Security limit applies to the self-employment income but not to the salary. C. Salary is first applied against the Social Security limit and then self-employment income is applied against the Social Security limit. D. Self-employment income is first applied against the Social Security limit and then salary is applied against the Social Security limit.

Which of the following statements concerning differences between employees and independent contractors is most accurate? A. Employees and independent contractors deduct business expenses as miscellaneous itemized deductions. B. While employees are typically eligible for nontaxable fringe benefits from employers, independent contractors are not. C. Employers are required to withhold either FICA or self employment taxes from compensation paid to employees and compensation paid to independent contractors. D. Employers typically withhold federal income taxes from compensation paid to employees and to independent contractors.

Which of the following statements concerning tax credits is true? A. The tax benefit a taxpayer receives from a credit depends on the taxpayer's marginal tax rate. B. Refundable tax credits are limited to a taxpayer's gross tax liability. C. Tax credits are generally more beneficial than tax deductions. D. None of these is a true statement.

Which of the following is not one of the general tax credit categories? A. Nonrefundable personal B. Refundable personal C. Business D. Refundable business

Which of the following statements regarding the child tax credit is false? A. The child for whom the credit is claimed must be under the age of 15 at the end of the year. B. The credit is subject to phase-out based on the taxpayer's AGI. C. The full credit for a child who qualifies is $1,000. D. The child for whom the credit is claimed must meet the definition of a qualifying child.

Quantitatively, what is the relationship between the AGI phase-out thresholds for the child tax credit? A. Head of household/Single = Married Filing Separately = Married Filing Jointly B. Head of household/Single < Married Filing Separately < Married Filing Jointly C. Head of household/Single = Married Filing Separately > Married Filing Jointly D. Head of household/Single > Married Filing Separately < Married Filing Jointly

Rhianna and Jay are married filing jointly in 2015. They have six children for whom they may claim the child tax credit. Their AGI was $123,440. What amount of child tax credit may they claim on their 2015 tax return? A. $5,300 B. $6,000 C. $12,000 D. $4,000

The amount of expenditures eligible for the child and dependent care credit is the least of three amounts. Which of the following is not one of those amounts? A. The total amount of child and dependent care expenditures for the year B. $3,000 for one qualifying person or $6,000 for two or more qualifying persons C. The dependent's earned income for the year D. The taxpayer's earned income for the year

Which of the following statements regarding the child and dependent care credit is false? A. Taxpayers may claim a credit for only a portion of qualifying dependent care expenditures. B. If a taxpayer's income is too high, she will be ineligible to claim any child and dependent care credit. C. A single taxpayer must have earned income to claim any child and dependent care credit. D. A taxpayer is not eligible to claim the dependent care credit if any dependent relative provides the care.

Trudy is Jocelyn's friend. Trudy looks after Jocelyn's four-year-old son during the day so Jocelyn can go to work. During the year, Jocelyn paid Trudy $4,000 to care for her son. What is the amount of Jocelyn's child and dependent care credit if her AGI for the year was $30,000? A. $0 B. $810 C. $1,080 D. $3,000

Kaelyn's mother, Judy, looks after Kaelyn's four-year-old twins so Kaelyn can go to work (she drops off and picks up the twins from Judy's home every day). Since Judy is a relative, Kaelyn made sure, for tax purposes, to pay her mother the going rate for child care ($6,300 for the year). What is the amount of Kaelyn's child and dependent care credit if her AGI for the year was $36,000? A. $1,440 B. $2,100 C. $6,000 D. $0

Which of the following statements regarding the child and dependent care credit is true? A. A married couple must file jointly to claim the credit. B. A taxpayer may claim a credit for dependent care expenses for a dependent who is 14 years old or older but only if the dependent lives in the taxpayer's home for the entire year. C. All else equal, a taxpayer making qualifying expenditures for three children may claim more dependent care credit than a taxpayer making (the same amount of) qualifying expenditures for two children. D. None of these statements is true.

Which of the following is not true of the American opportunity credit? A. A taxpayer with multiple eligible dependents can claim a credit for each dependent's qualifying expenses B. The credit is available for students during their first four years of postsecondary education only C. It is phased out based on the taxpayer's AGI D. A taxpayer may not claim a credit unless the taxpayer pays a dependent's qualifying educational expenses

Which of the following is not true of the lifetime learning credit? A. It is a nonrefundable credit. B. The credit can be claimed by taxpayers who have graduated from college and are taking professional training courses to improve their job skills. C. A taxpayer with multiple dependents can claim a credit for each dependent's qualifying expenses. D. The credit is subject to phase out based on the taxpayer's AGI.

Which of the following is not a true statement about the American opportunity credit (AOC) and lifetime learning credits? A. A taxpayer may not report both an AOC and a lifetime learning credit on the same tax return. B. Certain educational expenses qualify for both credits but taxpayers must claim one credit or the other for the expenditures (the taxpayer cannot claim both credits for the same expenditures). C. Taxpayers may choose to either (1) deduct qualifying education expenses of an individual as for AGI deductions or claim educational credits for the individual's expenses (but not both). D. The AGI phase-out threshold for phasing out the AOC is higher than the AGI phase-out threshold for the lifetime learning credit.

Which of the following statements regarding the earned income credit is true? A. It is a nonrefundable credit. B. It is possible that a taxpayer with more earned income may receive more credit than a taxpayer with less earned income. C. A 70-year-old taxpayer with no dependents can qualify for the credit in certain circumstances. D. A taxpayer whose only source of income is interest from corporate bonds is eligible for the credit.

Which of the following does not affect the amount of the earned income credit? A. Filing status. B. Amount of credit taken in previous years. C. Number of qualifying children. D. Taxpayer's AGI.

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? A. $0 B. $1,359 C. $3,305 D. $4,189 E. $5,548

Which of the following statements regarding credits is correct? A. Business expenses are generally refundable credits. B. Business credits that are generated in one year but are not utilized in that year expire. C. Business credits that are generated in one year but are not utilized in that year may be carried forward to future years but not back to a prior year. D. Business credits that are generated in one year but are not utilized in that year may be carried back to the previous year and then forward to future years.

If there is not enough gross tax liability to use the foreign tax credit, __________. A. it expires unused B. it is carried back 2 years or forward 20 years C. it is carried back 3 years or forward 5 years D. it is carried back 1 year or forward 10 years

Which of the following tax credits is fully refundable? A. American opportunity credit B. Dependent care credit C. Earned income credit D. None of these

How could an individual obtain a business tax credit? A. Through self-employment activities B. Through flow-through from a partnership or S corporation C. By working overseas and obtaining a foreign tax credit D. All of these

Which of the following represents the correct order in which credits are applied to gross tax liability (from first to last)? A. Nonrefundable personal, business, refundable B. Business, nonrefundable personal, refundable C. Refundable, nonrefundable personal, business D. Refundable, business, nonrefundable personal

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? A. $1,000 taxes payable B. $0 refund or taxes payable C. $700 refund D. $300 refund

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)? A. $46,861 B. $48,722 C. $51,547 D. $53,594

If an employer withholds taxes from an employee, in general, when are these taxes treated as paid to the IRS? A. As withheld B. As the employee requests on his/her W-4 form C. Evenly throughout the year D. On April 15

Which of the following statements about estimated tax payments and underpayment penalties is true for individual taxpayers? A. Taxpayers who have paid their full tax liability by the original tax return due date are protected from underpayment penalties. B. Taxpayers who have paid their full tax liability by the extended tax return due date are protected from underpayment penalties. C. Taxpayers who have uneven income streams can pay estimated tax quarterly in uneven amounts and not be susceptible to underpayment penalties. D. Taxpayers who have paid their required amount of estimated tax, even though not on time, are protected from underpayment penalties.

Which of the following statement(s) concerning estimated tax payments and underpayment penalties for individuals is(are) true? A. Whether taxpayers are subject to underpayment penalties is determined on a quarterly basis. B. Due dates for estimated tax payments for a given year are April 15, June 15, September 15 of that year and January 15 of the next year unless these dates fall on a weekend or a holiday. C. The amount of penalty depends on the amount of the underpayment among other factors. D. All of these statements are true

What happens if the taxpayer owes an underpayment penalty, but does not compute it on Form 2210? A. Nothing, unless the taxpayer is audited B. The taxpayer is immediately sent to the Tax Court C. The IRS will compute and assess the penalty D. The penalty is increased by five percentage points

Happy, Sleepy, Grumpy, and Doc all did not make adequate estimated payments. Which of them will not owe underpayment penalties for 2015 given the following information? Tax liability 2015 Tax liability 2014 Tax liability 2013 Happy $2,200 $0 $500 Sleepy $1,500 $500 $700 Grumpy $1,200 $200 $0 Doc $800 $1,100 $1,001 A. Happy B. Sleepy C. Grumpy D. Doc E. Happy and Doc F. None of these

Taxpayers are not required to file a tax return unless their gross income passes a certain threshold. This threshold is generally the ________. A. applicable standard deduction amount B. personal exemption amount C. twice the applicable standard deduction amount D. applicable standard deduction amount plus the personal exemption amount

Why would a taxpayer file a tax return if not required to do so? A. to remain in favor with the IRS B. to claim a refund of taxes paid C. all taxpayers are required to file returns D. in order to claim the standard deduction

Looking at the following partial calendar for April, when will individual tax returns be due? April Sunday Monday Tuesday Wednesday Thursday Friday Saturday 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 National Accountants Day (Federal Holiday) 18 19 20 21 22 A. Friday, April 14 B. Saturday, April 15 C. Sunday, April 16 D. Monday, April 17 E. Tuesday, April 18

Which of the following is not true of the extension to file an individual tax return? A. It is granted automatically by the IRS if requested B. It must be requested by the original due date of the return C. It extends the due date for the return and associated tax payments beyond the original due date of the tax return D. The extension is for six months beyond the original due date

Which of the following taxpayers (all age 40) are required to file a return? Taxpayer Filing Status Number of exemptions Gross Income Jenny and Jim Married Filing Jointly 2 $21,000 Allen Single 1 $9,300 Timmy Head of Household 2 $10,800 A. Jenny and Jim B. Allen C. Timmy D. None of these

What is the underpayment penalty rate that taxpayers pay when they underpay their estimated taxes? A. Federal short-term interest rate. B. Federal short-term interest rate plus three percentage points. C. Federal long-term interest rate plus six percentage points. D. Zero. The government does not pay interest on overpayments.

Which of the following statements regarding late filing penalties is true? A. If a taxpayer fails to file a tax return, the late filing penalty will continue to grow until the taxpayer files the tax return. (no maximum) B. The amount of the late filing penalty is the same for both fraudulent failure to file and nonfraudulent failure to file. C. Taxpayers who owe no tax as of the due date of their tax returns are not subject to late filing penalties even if they file late. D. None of these.

Which of the following statements regarding late filing penalties and/or late payment penalties is true? A. An extension of time to file the tax return protects a taxpayer from late payment penalties as long as the tax is paid by the extended due date of the return. B. The penalty rate for late filing penalties is less than the penalty rate for late payment penalties. C. If a taxpayer has not paid the full tax liability by the original due date of the return and the taxpayer has not filed a tax return by the due date of the return, the maximum late filing and late payment penalty will be no greater than the late filing penalty by itself. D. None of these