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Exam 8: Individual Income Tax Computation and Tax Credits

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Question 61

True/False

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A marriage penalty occurs when a couple pays more taxes by filing a joint tax return than they would have paid had they filed married filing separate returns.

A) True
B) False

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Question 62

Multiple Choice

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Which of the following statements regarding the AMT exemption amounts is not true?

A) The amount of the exemption depends on the taxpayer's filing status.
B) The exemption amount is completely phased-out for high income taxpayers.
C) Taxpayers must choose whether they will claim the exemption or itemize deductions.
D) None of the above statements is false (all of the above statements are true) .

E) B) and C)
F) A) and B)

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Question 63

Multiple Choice

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Which of the following statements best describes the deductions independent contractors may claim for valid business expenses?

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

Clarissa's gross tax liability for 2018 is $1,300. She has a $1,500 nonrefundable personal tax credit, a $750 business tax credit, and a $400 refundable personal tax credit. Her employer withheld $1,000 from her pay for taxes. What is her net tax due or refund for this year?

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?

Henry and Janice are married and file jointly. They have an AGI (and modified AGI) of $290,000, which includes $90,000 of salary, $170,000 of active business income, $10,000 of interest income, $15,000 of dividends, and $5,000 of long-term capital gains. What are Henry and Janice's net investment income tax liability this year, rounded to the nearest whole dollar amount?

In 2018, 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?

Harmony is single and was self-employed for the first half of 2018, 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?

Which of the following is not an additional tax a taxpayer may have to pay?

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.

Which of the following statements regarding late filing penalties and/or late payment penalties is true?

Long-term capital gains are taxed at the stated AMT rate for purposes of the alternative minimum tax.

Which of the following is not true of the extension to file an individual tax return?

The child and dependent care credit entitles qualifying taxpayers to a credit equal to the full amount of qualified expenses.

During all of 2018, Mr. and Mrs. Clay lived with their four children (all are under the age of 17). They provided over one-half of the support for each child. Mr. and Mrs. Clay file jointly for 2018. Neither is blind, and both are under age 65. They reported the following tax-related information for the year: (Use the tax rate schedules) A. What is the Clays' taxes payable or (refund due) (ignore the alternative minimum tax)? B. What is the Clays' tentative minimum tax and alternative minimum tax?

Which of the following suggests that a working taxpayer is an independent contractor rather than an employee?

Montague (age 15) is claimed as a dependent by his parents Matt and Mary. In 2018, Montague received $5,000 of qualified dividends and he received $800 from a part time job. What is his taxable income for 2018?

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

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