Question 1

An 80-year-old taxpayer with earned income and no dependent children could qualify for the earned income credit.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements regarding credits is correct?

Accepted Answer

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 
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

Question 3

Both the width (or range) of the tax brackets (the amount of income taxed at a particular rate) in the tax rate schedules and the range of the tax rates in the tax rate schedules (the difference between the lowest tax rate and the highest tax rate) vary by filing status.

Accepted Answer

A) True 
 B)False

Question 4

Lexa worked as an employee during the first half of the year earning $65,000 of salary. Lexa's employer withheld $4,030 of Social Security tax and $943 of Medicare tax. In the second half of the year, she was self-employed and she reported $180,000 of self-employment income on her ScheduleC. What amount of self-employment taxes is Lexa required to pay?
$11,549.
 \(\begin{array}{c}
\begin{array}{|l|}
 \hline \text {Description}\
 \hline \text {(1) Social Security wage base limit less}\
 \text { employee compensation subject to }\
 \text {Social Security tax}\
 \hline \text {(2) Net carnings from self-employment}\
 \hline \text {(3) Social Security portion of self}\
 \text {employment tax}\ 
 \hline \text {(4) Employer pertion of Medicare tax on }\
 \text {the self-employment income}\
 \hline \text {(5) Sum of taxpayer's compensation and net }\
 \text {earnings from self-employment}\
 \hline \text {(6) Lesser of [Step (5) amount or \$ 200,000] }\
 × 1.45 \% \
 \hline \text {(7) Greater of [(a) zero or (b) the amount}\
\text { from Step(5) minus  \$ 200,000]  × 2.35 \% }\
\hline \text {(8) Steps (6) + (7) - Medicare taxes}\
 \text { withheld by Lexa's employer. This is }\
 \text {the employee portion of Medicare tax}\
 \text { on the self-employment income.}\
\hline \text {(9) Steps (3) +(4)+(8) }\
\hline
\end{array}
\begin{array}{l|}
\hline\text { Amount }\
\hline\$52,000\
\
\

\hline166,230\
\hline6,448\
\
\hline2,410\
\
\hline231,230\
\
\hline2,900\
\
\hline734\
\
\hline2,691\
\
\
\

\hline11,549\
\hline
\end{array}
\begin{array}{l|}

\hline \text {Explamation}\
 \hline\text {\$ 117,000-\$ 65,000 , limited to  \$ 0}\
\
\
 \hline \$ 180,000×92.35 \% \
\hline\text { Lesser of [  Step(1) or  (2)] × 12.4 \% } \
\
\hline \text {Step  (2)× 1.45 \%} \
\
\hline\text { \$ 65,000+  Step  (2) }\
\
\hline 200,000×1.45 \% \
\
\hline 31,230× 2.35 \% \
\
\hline 2,900+734-943 \
\
\
\
\hline\
\hline
\end{array}
\end{array}\)

Accepted Answer

The answer of Lexa worked as an employee during the...

Question 5

In 2014, John (52 years old) files as a head of household with one 18-year old dependent (qualifying) child. John is eligible to claim a $700 American opportunity credit for the year. John did not have any taxes withheld by his employer during the year and he did not make any estimated tax payments. After taking credits into account, what is the amount of John's taxes payable or refund assuming that his AGI is $26,000 (all from salary) and his taxable income is $9,000?

Accepted Answer

The answer of In 2014, John (52 years old) files...

Question 6

Employees are not allowed to deduct FICA taxes they pay.

Accepted Answer

A) True 
 B)False

Question 7

Tax credits reduce a taxpayer's taxable income dollar for dollar.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statement(s) concerning estimated tax payments and underpayment penalties for individuals is (are) true?

Accepted Answer

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. 
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.

Question 9

Which of the following could explain why large number of taxpayers are subject to (or could become subject to) AMT?

Accepted Answer

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 
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

Question 10

Which of the following statements concerning differences between employees and independent contractors is most accurate?

Accepted Answer

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. 
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.

Question 11

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 five percent.

Accepted Answer

$25 ($3 +

Question 12

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?

Accepted Answer

A)  $1,440 
B)  $2,100 
C)  $6,000 
D)  $0 
A)  $1,440 
B)  $2,100 
C)  $6,000 
D)  $0

Question 13

Which of the following items is not added back to regular taxable income in computing alternative minimum taxable income?

Accepted Answer

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 
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

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Johann had a gross tax liability of $22,508 in 2014, but his employer only withheld taxes of $19,500. Johann's gross tax liability was $21,000 in 2013. Calculate Johann's under/overpayment in each quarter for 2014 tax purposes.

Accepted Answer

Underwitheld by $189

Question 16

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?

Accepted Answer

A)  $0 
B)  $810 
C)  $1,080 
D)  $3,000 
A)  $0 
B)  $810 
C)  $1,080 
D)  $3,000

Question 17

The taxable income levels in the married filing jointly tax rate schedule are _______ those in the married filing separately schedule.

Accepted Answer

A)  the same as 
B)  double 
C)  half the amount of 
D)  None of these 
A)  the same as 
B)  double 
C)  half the amount of 
D)  None of these

Question 18

In 2014, Shawn's AGI is $170,000. He earned the income evenly throughout the year. He owed $24,900 in federal income tax plus alternative minimum tax of $263, and self-employment taxes of $2,590. Last year, he had a gross tax liability of $50,000. What is the minimum quarterly estimated tax payment Shawn must pay each quarter to avoid underpayment penalties for 2014?

Accepted Answer

The answer of In 2014, Shawn's AGI is $170,000. He...

Question 19

How could an individual obtain a business tax credit?

Accepted Answer

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 
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

Question 20

Which of the following statements accurately describes the alternative minimum tax rate(s)?

Accepted Answer

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. 
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.

Exam 7: Individual Income Tax Computation and Tax Credits

An 80-year-old taxpayer with earned income and no dependent children could qualify for the earned income credit.

Which of the following statements regarding credits is correct?

Both the width (or range) of the tax brackets (the amount of income taxed at a particular rate) in the tax rate schedules and the range of the tax rates in the tax rate schedules (the difference between the lowest tax rate and the highest tax rate) vary by filing status.

Employees are not allowed to deduct FICA taxes they pay.

Tax credits reduce a taxpayer's taxable income dollar for dollar.

Which of the following statement(s) concerning estimated tax payments and underpayment penalties for individuals is (are) true?

Which of the following could explain why large number of taxpayers are subject to (or could become subject to) AMT?

Which of the following statements concerning differences between employees and independent contractors is most accurate?

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 five percent.

Which of the following items is not added back to regular taxable income in computing alternative minimum taxable income?

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

Johann had a gross tax liability of $22,508 in 2014, but his employer only withheld taxes of $19,500. Johann's gross tax liability was $21,000 in 2013. Calculate Johann's under/overpayment in each quarter for 2014 tax purposes.

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?

The taxable income levels in the married filing jointly tax rate schedule are _______ those in the married filing separately schedule.

How could an individual obtain a business tax credit?

Which of the following statements accurately describes the alternative minimum tax rate(s)?

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

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