Exam 14: The Individual Tax Formula

The earned income credit offsets the burden of the federal payroll tax on low-income families and encourages individuals to seek employment rather than to depend on welfare.

Miss Blixen's regular income tax is $77,390,and her tentative minimum tax is $74,100.Consequently,Miss Blixen's alternative minimum tax (AMT)is zero.

Mr.Marshall was employed by IMP Inc.until October,when he accepted a new position with Turine Inc.Mr.Marshall earned $129,000 compensation from IMP and $36,000 compensation from Turine.Which of the following statements is false?

Mr.and Mrs.Jelk file a joint return.They provide 65% of the financial support for David,the 14-year old son of a friend who died three years ago.David lives in the home of his aunt Sarah,who provides 35% of his financial support.Which of the following statements is true?

Mr.and Mrs.Warren's AGI last year was $90,300,and their total tax was $13,988.This year,the couple's total tax is $14,700.Unless the Warrens paid at least $13,988 in the form of withholding and quarterly estimated payments,they will incur an underpayment penalty this year.

Which of the following statements regarding exemptions is false?

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.

Ms.Dolan,an unmarried individual,invited her elderly uncle,Martin,to move into her home in January of this year.Martin's only income item was $2,390 of taxable interest on a savings account.Ms.Dolan provides over 90% of her uncle's financial support.What is Ms.Dolan's filing status and number of exemptions for the year?

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.

Jay Blount,26-years old and a full time student,lives in his parents' home.Although Jay earned $8,400 from a part-time job,his parents provide at least 75% of his financial support.Jay's parents may claim him as a dependent this year.

Mr.and Mrs.Cox reported $115,900 AGI on their joint return.The couple has three dependent children under age 17.Compute their child credit.

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.

Mr.and Mrs.Upton's marginal tax rate on their joint return is 33%.This year,their itemized deductions totaled $13,800,and their standard deduction (MFJ)was $12,700.Compute their incremental tax savings from their itemized deductions.

The unextended due date for the individual tax return (Form 1040)is the 15^th day of the third month following the close of the taxable year.

Which of the following statements regarding the calculation of regular tax liability is false?

Julie,an unmarried individual,lives in a home with her 13-year-old dependent son,Oscar.This year,Julie had the following tax information.Standard Deduction Table. Compute Julie's adjusted gross income (AGI)and taxable income.

In computing taxable income,an individual is allowed to deduct the lesser of itemized deductions or the standard deduction.

Which of the following statements regarding tax payments is true?

Individual taxpayers can obtain an automatic extension of time to file a calendar year Form 1040 until October 15 of the following year.

Married individuals who elect to file separate tax returns may use the single rates to compute their tax.