Exam 8: Individual Income Tax Computation and Tax Credits

Assume Georgianne underpaid her estimated tax liability by $150 in the first quarter, $500 in the second quarter, $400 in the third quarter, and $200 in the fourth quarter.Calculate her underpayment penalty for the year, assuming the federal short-term interest rate is 5 percent.

Generally, income from an active trade or business is subject to the 3.8 percent net investment income tax.

Which of the following statements concerning tax credits is true?

Akiko and Hitachi (married filing jointly for 2019)are both educators.They attended a conference to further their job-related skills.Tuition for the conference was $2,000 for each person.Their AGI was $122,000.How much lifetime learning credit can they claim?

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

Parents may claim a $2,000 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.

Jack paid $5,000 in daycare expenses for his five-year-old daughter so he could work.His AGI for the year was $37,500 (all earned income).What is the amount of his child and dependent care credit?

Wolfina's twins, Romulus and Remus, finished their first year of school at an accredited university in 2019.She paid $10,000 in qualified educational expenses for Romulus and $2,000 of qualifying expenses for Remus.Wolfina is a head of household with an AGI of $85,000.What amount of American opportunity credit may she claim?

Keith and Nicole are married filing jointly, with two daughters who qualify as dependents.Their gross income for 2019 is $25,500.Are they required to file a tax return? How do you know this without memorizing the gross income thresholds? In 2019, the standard deduction for taxpayers filing a joint return is $24,400.

Julien and Sarah are married, file a joint return, and have two children, Kaya and Christopher.Kaya just finished her third year at college and Christopher just finished his first year of graduate school (fifth year of college).Tuition and books for the past year were $1,800 for Kaya and $5,000 for Christopher.How much can Julien and Sarah claim in educational credits if their joint AGI was $126,000 for 2019?

In certain circumstances a child with very little income may have at least a portion of their income taxed at the trust and estate tax rates.

Jocelyn, a single taxpayer, had $742,000 of taxable income in 2019.All of the income is ordinary.What is her tax liability for the year? (Use Tax rate schedules.)

Henry and Janice are married and file jointly.They have an AGI (and modified AGI)of $290,000, which includes $90,000 of salary, $170,000 of active business income, $10,000 of interest income, $15,000 of dividends, and $5,000 of long-term capital gains.What is Henry and Janice's net investment income tax liability this year, rounded to the nearest whole dollar amount?

Maria and Tony are married.They are preparing to file their 2019 tax return.If they were to file as single taxpayers, Maria and Tony would report $10,000 and $70,000 of taxable income, respectively.On their joint tax return, their taxable income is $80,000.How much of a marriage penalty or benefit will Maria and Tony experience in 2019? (Use Tax rate schedules.)

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.

Hestia (age 17)is claimed as a dependent by her parents, Rhea and Chronus.In 2019, 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 2019?

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.

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?

Which of the following statements regarding the child tax credit is false?

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