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Exam 8: Individual Income Tax Computation and Tax Credits

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Question 41

Multiple Choice

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Montague (age 15) is claimed as a dependent by his parents Matt and Mary. In 2016, Montague received $5,000 of qualified dividends and he received $800 from a part time job. What is his taxable income for 2016?

A) $0
B) $3,900
C) $4,650
D) $4,750

E) C) and D)
F) None of the above

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Question 42

Multiple Choice

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Asteria earned a $25,500 salary as an employee in 2016. How much should her employer have withheld from her paycheck for FICA taxes? (rounded to the nearest whole dollar amount)

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

E) A) and B)
F) B) and D)

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Question 43

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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 $1,550 in interest income from the bonds. What amount of tax will Athena pay on the interest income?

During 2016, Jasmine (age 12) received $2,400 from a corporate bond. She also received $600 from a savings account established for her by her parents. Jasmine lives with her parents and she is their dependent. Assuming her parents' marginal tax rate is 28%, what is Jasmine's gross tax liability?

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?

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.

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, $943 of Medicare tax, and $0 of .9 percent additional Medicare tax. In the second half of the year, she was self-employed and she reported $180,000 of self-employment income on her Schedule C. What amount of self-employment taxes is Lexa required to pay?

Parents may claim a child and dependent care credit for expenses incurred in providing for their dependents while the parents work as long as the children are over age 14 and under age 20 at year end.

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

Tamra and Jacob are married and they file a joint tax return. Tamra received nearly five times the salary that Jacob received. Which of the following statements is true?

Candace is claimed as a dependent on her parent's tax return. Her parents' ordinary income marginal tax rate is 33%. In 2016, 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?

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

Jamie is single. In 2016, she reported $100,000 of taxable income, including a long-term capital gain of $5,000. What is her gross tax liability, rounded to the nearest whole dollar amount? (use the tax rate schedules)

Which of the following statements regarding the child and dependent care credit is false?

The tax rate schedules are set up to tax lower levels of income at higher tax rates than higher levels of income.

For alternative minimum tax purposes, taxpayers are allowed to deduct state income taxes but are not allowed to deduct charitable contributions.

Harmony was self-employed for the first half of 2016, 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?

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

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?

The late payment penalty is based on the amount of tax owed and the number of days that the tax is not paid. The maximum amount of the penalty is unlimited.