Exam 7: Individual Income Tax Computation and Tax Credits

Max is a 14-year-old dependent of his parents. During 2014, Max earned $1,800 working part time jobs and he received $1,500 of interest income from corporate bonds that were given to him last year. What is Max's 2014 taxable income?

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.

Keith and Nicole are married filing joint with two daughters who qualify as dependents. Their gross income for 2014 is $21,000. Are they required to file a tax return? How do you know this without memorizing the gross income thresholds? In 2014, the standard deduction for taxpayers filing a joint return is $12,400 and the personal exemption is $3,950.

Which of the following statements regarding late filing penalties is true?

Apollo is single and his AMT base is $100,250. This amount includes $500 of qualified dividends (the dividends were taxed at 15% in determining the regular tax liability). What is Apollo's tentative minimum tax?

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

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

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.

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?

Hera wants to reduce her income tax liability by shifting some of her income to her 10-year-old daughter (a dependent), Athena. Last year, Hera gifted corporate bonds to Athena. This year, Athena received $1,500 in interest income from the bonds. What amount of tax will Athena pay on the interest income?

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

Which of the following does not affect the amount of the earned income credit?

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?

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

Harmony was self-employed for the first half of 2014, earning $18,000 of Schedule C (business) net income. During the second half of the year, she began working as an employee and earned $38,000 in salary. What amount of self-employment taxes is Harmony required to pay?

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

Which of the following statements concerning tax credits is true?

Candace is claimed as a dependent on her parent's tax return. Her parents' ordinary income marginal tax rate is 33%. In 2014, Candace received $5,000 of interest income from corporate bonds she obtained several years ago. This is her only source of income. She is 15 years old at year end. What is her gross tax liability?

Employees are not allowed to deduct FICA taxes they pay.

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?