Question 1

When applying credits against a taxpayer's gross tax liability, nonrefundable personal credits are applied first, then business credits, and finally refundable personal credits.

Accepted Answer

A) True 
 B)False  True

Question 2

Harmony is single and was self-employed for the first half of 2019, 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?

Accepted Answer

$2,543.
Answer computed as follows:
 $\begin{array}{llcc}
  \text { Description } & \text {Amount  } & \text { Reference }   \
 \text { Limit on Social Security wage } &\
 \text { (1) base } &\$132,900\
 \text {(2) Employee compensation  } &38,000\
 \text {(3) Limit on Social Security base for   } &\
 \text { self-employment tax purposes } &94,900&(1)-(2)\
  \text {(4) Self-employment income  } &\$18,000  \
 \text {  Net earnings from self- } &\
 \text { (5) employment percentage } &92.35\%&(1)×(4)\
 \text {  Net earnings from self- } &\
 \text { (6) employment } &16,623&(4)×(5)\
 \text { Social Security portion of self- } & \text { [Lesser of (3) or $ (6)] \times $}\
  \text { (7) employment tax } & 2,061&12.4 \% \
 \text { (8) Medicare portion of selfe- } &482& \text { (6) $ \times 2.9 \% $. Note that}\
 \text {  mployment tax} & &\text { Harmony is not subject to  } \
&& \text { the additional Medicare tax  }\
&& \text { because her net selfe- } \
 &&\text {mployment earnings do  } \
&& \text {  not exceed $ \$ 200,000 $. }\
 \text {Total self-employment tax  } &\$2,543&(7)+(8)\
\end{array}$

Question 3

In 2019, Maia (who files as a head of household)reported regular taxable income of $115,000.She itemized her deductions, deducting $8,000 in charitable contributions and $3,000 in state income taxes.What is Maia's alternative minimum taxable income?

Accepted Answer

A)  $115,000
B)  $118,000
C)  $123,000
D)  $126,000 B

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

In 2019, Shawn's AGI is $170,000.He earned the income evenly throughout the year.He owed $29,890 in federal income tax 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 2019?

Accepted Answer

The answer of In 2019, Shawn's AGI is $170,000.He earned...

Question 6

Costa is a single taxpayer.His regular tax liability was $38,000.For 2019, he reported $190,000 of alternative minimum taxable income.What is his alternative minimum tax?

Accepted Answer

The answer of Costa is a single taxpayer.His regular tax...

Question 7

Employees are allowed to deduct a portion of the FICA taxes they pay.

Accepted Answer

A) True 
 B)False

Question 8

Business credits are generally refundable credits.

Accepted Answer

A) True 
 B)False

Question 9

Harmony reports a regular tax liability of $15,000 and tentative minimum tax of $17,000.Given just this information, what is her alternative minimum tax liability for the year?

Accepted Answer

A)  $0
B)  $2,000
C)  $15,000
D)  $17,000

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Sheryl's AGI is $250,000.Her current tax liability is $52,068.Last year, her tax liability was $48,722.She will not owe underpayment penalties if her total estimated tax payments are at least which of the following (rounded)amounts? (Assume she makes the required payments each quarter.)

Accepted Answer

A)  $46,861
B)  $48,722
C)  $51,547
D)  $53,594

Question 12

Jackson earned a salary of $254,000 in 2019.What amount of FICA taxes should Jackson's employer withhold from his paycheck?

Accepted Answer

The answer of Jackson earned a salary of $254,000 in...

Question 13

Which of the following tax credits is fully refundable?

Accepted Answer

A)  American opportunity credit
B)  Dependent care credit
C)  Earned income credit
D)  None of the choices are correct

Question 14

John and Sally pay Janet (Sally's older sister)to watch John and Sally's child Dexter during the day.Janet cares for Dexter in her home.John and Sally may claim a child and dependent care credit based on the amount they pay Janet to care for Dexter.

Accepted Answer

A) True 
 B)False

Question 15

Baker is single and earned $225,000 of salary as an employee in 2019.How much should his employer have withheld from his paycheck for FICA taxes? (Round your answer to the nearest whole dollar amount.)

Accepted Answer

A)  $11,727
B)  $11,502
C)  $10,879
D)  $17,213

Question 16

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

Accepted Answer

The answer of Apollo is single and his AMT base...

Question 17

Max is a 14-year-old dependent of his parents.During 2019, 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 2019 taxable income?

Accepted Answer

The answer of Max is a 14-year-old dependent of his...

Question 18

The AMT exemption amount is phased out for high-income taxpayers.

Accepted Answer

A) True 
 B)False

Question 19

Due to the alternative minimum tax rate structure, a taxpayer with a large amount of long-term capital gains may be susceptible to the alternative minimum tax.

Accepted Answer

A) True 
 B)False

Question 20

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 3 percentage points
C)  Federal long-term interest rate plus 6 percentage points
D)  Zero.The government does not pay interest on overpayments

Exam 8: Individual Income Tax Computation and Tax Credits

When applying credits against a taxpayer's gross tax liability, nonrefundable personal credits are applied first, then business credits, and finally refundable personal credits.

Harmony is single and was self-employed for the first half of 2019, 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?

In 2019, Maia (who files as a head of household) reported regular taxable income of $115,000.She itemized her deductions, deducting $8,000 in charitable contributions and $3,000 in state income taxes.What is Maia's alternative minimum taxable income?

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

Costa is a single taxpayer.His regular tax liability was $38,000.For 2019, he reported $190,000 of alternative minimum taxable income.What is his alternative minimum tax?

Employees are allowed to deduct a portion of the FICA taxes they pay.

Business credits are generally refundable credits.

Harmony reports a regular tax liability of $15,000 and tentative minimum tax of $17,000.Given just this information, what is her alternative minimum tax liability for the year?

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

Sheryl's AGI is $250,000.Her current tax liability is $52,068.Last year, her tax liability was $48,722.She will not owe underpayment penalties if her total estimated tax payments are at least which of the following (rounded) amounts? (Assume she makes the required payments each quarter.)

Jackson earned a salary of $254,000 in 2019.What amount of FICA taxes should Jackson's employer withhold from his paycheck?

Which of the following tax credits is fully refundable?

John and Sally pay Janet (Sally's older sister)to watch John and Sally's child Dexter during the day.Janet cares for Dexter in her home.John and Sally may claim a child and dependent care credit based on the amount they pay Janet to care for Dexter.

Baker is single and earned $225,000 of salary as an employee in 2019.How much should his employer have withheld from his paycheck for FICA taxes? (Round your answer to the nearest whole dollar amount.)

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

Max is a 14-year-old dependent of his parents.During 2019, 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 2019 taxable income?

The AMT exemption amount is phased out for high-income taxpayers.

Due to the alternative minimum tax rate structure, a taxpayer with a large amount of long-term capital gains may be susceptible to the alternative minimum tax.

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