Exam 14: The Individual Tax Formula

Mr. Lenz died on May 4, 2014. His widow, Mrs. Lenz, maintains a home for her three children, ages 4, 6, and 11. Mrs. Lenz must file as a head of household in 2015.

Mrs. Starling worked for Abbot Inc. from January 1 through September 19. Her salary from Abbot for this period totaled $122,000. Mrs. Starling worked for JJT Inc. from October 1 through December 31. Her salary from JJT for this period totaled $38,000. JJT is not required to withhold Social Security tax from Mrs. Starling's salary because Abbot Inc. already withheld the maximum tax for the year.

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.

Mr. and Mrs. David file a joint tax return. They have $169,300 taxable income in 2015, $120,300 of which is ordinary income and $49,000 of which is taxed at a 15% preferential rate. Compute their tax savings from the preferential rate.

A husband and wife are allowed only one exemption on a jointly filed return.

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.

Which of the following statements regarding filing status is false?

Based on the 2015 tax rates, an individual is indifferent between filing as a single taxpayer or a head of household if he has $9,225 or less of taxable income.

Every individual taxpayer is entitled to an AMT exemption, the amount of which varies with filing status.

For the taxable year in which a married person dies, the widow or widower can file a joint return with the deceased.

Mr. and Mrs. Lansing, who file a joint tax return, have four dependent children under age 17. Which of the following statements is false?

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. Reid reported $435,700 ordinary taxable income for regular tax purposes and had $58,200 positive AMT adjustments and preferences. Compute their tentative minimum tax.

An extension of the time to file an individual tax return also extends the time to pay any balance of tax due with the return.

Mr. and Mrs. Kline file a joint return on which they claim the standard deduction and two exemptions. If the taxable income on their return is $55,300, they are not paying a marriage penalty.

Melissa, age 16, is claimed as a dependent on her parents' tax return. This year, Melissa earned $510 from babysitting and $220 interest income from a savings account. Compute Melissa's standard deduction.

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

Mr. and Mrs. Steel, who file a joint return, have $513,200 taxable income in 2015. Compute their regular tax liability.

Mr. and Mrs. Eller's AGI last year was $287,300, and their total tax was $70,268. The couple's safe-harbor estimate of current year tax is $77,295.

The standard deduction and exemption amount are not deductible in the computation of alternative minimum taxable income.