Question 1

Self-employed taxpayers are allowed to deduct the full amount of the self-employment taxes they pay.

Accepted Answer

A) True 
 B)False

Question 2

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.

Accepted Answer

A) True 
 B)False

Question 3

To qualify for the earned income credit, the taxpayer must have a qualified dependent.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is not a true statement about the American opportunity credit (AOC) and lifetime learning credits?

Accepted Answer

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. 
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.

Question 5

Taxpayers are not allowed to deduct personal or dependency exemptions for alternative minimum tax purposes.

Accepted Answer

A) True 
 B)False

Question 6

Taxpayers are not required to file a tax return unless their gross income passes a certain threshold. This threshold is generally the ________.

Accepted Answer

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 
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

Question 7

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?

Accepted Answer

A)  $0 
B)  $11,500 
C)  $975 
D)  $12,475 
A)  $0 
B)  $11,500 
C)  $975 
D)  $12,475

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

The child tax credit is subject to phase-out based on the taxpayer's AGI.

Accepted Answer

A) True 
 B)False

Question 10

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?

Accepted Answer

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. 
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.

Question 11

An individual could pay 100% of her tax liability by the due date of her tax return and still be subject to underpayment tax penalties.

Accepted Answer

A) True 
 B)False

Question 12

Sam is 30 years old. In 2014, he reported an AGI of $12,000, all from his job as a server at the local café. He is single and has no dependents. What amount of earned income credit may he claim in 2014?

Accepted Answer

The answer of Sam is 30 years old. In 2014,...

Question 13

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?

Accepted Answer

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. 
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.

Question 14

What is the underpayment penalty rate that taxpayers pay when they underpay their estimated taxes?

Accepted Answer

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. 
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.

Question 15

Katlyn reported $300 of net income from her sole proprietorship. She is not required to pay self-employment tax.

Accepted Answer

A) True 
 B)False

Question 16

Montague (age 15) is claimed as a dependent by his parents Matt and Mary. In 2014, Montague received $5,000 of qualified dividends and he received $800 from a part time job. What is his taxable income for 2014?

Accepted Answer

A)  $0 
B)  $3,800 
C)  $4,650 
D)  $4,800 
A)  $0 
B)  $3,800 
C)  $4,650 
D)  $4,800

Question 17

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?

Accepted Answer

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. 
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.

Question 18

Asteria earned a $25,500 salary as an employee in 2014. How much should her employer have withheld from her paycheck for FICA taxes (rounded to the nearest whole dollar amount)?

Accepted Answer

A)  $370 
B)  $1,581 
C)  $1,951 
D)  $3,902 
A)  $370 
B)  $1,581 
C)  $1,951 
D)  $3,902

Question 19

For married couples, the Medicare tax is based on the couple's combined wages.

Accepted Answer

A) True 
 B)False

Question 20

Employees must pay both Social Security tax and Medicare tax on all of their wages no matter the amount of their wages.

Accepted Answer

A) True 
 B)False

Exam 7: Individual Income Tax Computation and Tax Credits

Self-employed taxpayers are allowed to deduct the full amount of the self-employment taxes they pay.

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.

To qualify for the earned income credit, the taxpayer must have a qualified dependent.

Which of the following is not a true statement about the American opportunity credit (AOC) and lifetime learning credits?

Taxpayers are not allowed to deduct personal or dependency exemptions for alternative minimum tax purposes.

Taxpayers are not required to file a tax return unless their gross income passes a certain threshold. This threshold is generally the ________.

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?

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

The child tax credit is subject to phase-out based on the taxpayer's AGI.

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?

An individual could pay 100% of her tax liability by the due date of her tax return and still be subject to underpayment tax penalties.

Sam is 30 years old. In 2014, he reported an AGI of $12,000, all from his job as a server at the local café. He is single and has no dependents. What amount of earned income credit may he claim in 2014?

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?

What is the underpayment penalty rate that taxpayers pay when they underpay their estimated taxes?

Katlyn reported $300 of net income from her sole proprietorship. She is not required to pay self-employment tax.

Montague (age 15) is claimed as a dependent by his parents Matt and Mary. In 2014, Montague received $5,000 of qualified dividends and he received $800 from a part time job. What is his taxable income for 2014?

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?

Asteria earned a $25,500 salary as an employee in 2014. How much should her employer have withheld from her paycheck for FICA taxes (rounded to the nearest whole dollar amount)?

For married couples, the Medicare tax is based on the couple's combined wages.

Employees must pay both Social Security tax and Medicare tax on all of their wages no matter the amount of their wages.

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual Deductions

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Investments

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The US Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning of the Cfa Institute

Filters