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Exam 8: Individual Income Tax Computation and Tax Credits

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Question 1

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

A) True
B) False

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Question 2

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Which of the following is not a barrier to income shifting among family members?

A) The assignment of income doctrine
B) Net unearned income for children 18 and younger taxed at marginal tax rates for trusts
C) Elimination of preferential tax rates (on dividends and long-term capital gains) for dependents
D) None of the choices are correct

E) All of the above
F) B) and C)

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Question 3

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Jocelyn, a single taxpayer, had $742,000 of taxable income in 2019. All of the income is ordinary. What is her tax liability for the year? (Use Tax rate schedules.)

Quantitatively, what is the relationship between the AGI phase-out thresholds for the child tax credit?

Lexa, a single taxpayer, 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 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 and additional Medicare tax is Lexa required to pay on her self-employment income (each component rounded to the nearest dollar)?

Which of the following best describes the manner in which self-employed taxpayers may deduct self-employment taxes?

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

Montague (age 15) is claimed as a dependent by his parents, Matt and Mary. In 2019, Montague received $5,000 of qualified dividends, and he received $800 from a part-time job. What is his taxable income for 2019?

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 is Henry and Janice's net investment income tax liability this year, rounded to the nearest whole dollar amount?

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

Taxpayers are not required to file a tax return unless their gross income passes a certain threshold. This threshold is generally the ________.

Julien and Sarah are married, file a joint return, and have two children, Kaya and Christopher. Kaya just finished her third year at college and Christopher just finished his first year of graduate school (fifth year of college). Tuition and books for the past year were $1,800 for Kaya and $5,000 for Christopher. How much can Julien and Sarah claim in educational credits if their joint AGI was $126,000 for 2019?

The earned income credit is sometimes referred to as a negative income tax.

Taxpayers are generally allowed to carry back and/or carry forward unused business credits.

Which of the following statements regarding the earned income credit is true?

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?

Miley, a single taxpayer, plans on reporting $30,475 of taxable income this year (all of her income is from a part-time job) . She is considering applying for a second part-time job that would give her an additional $10,000 of taxable income. By how much will the income from the second job increase her tax liability? (Use the Tax rate schedules.)

Which of the following tax credits is fully refundable?

If an employer withholds taxes from an employee, in general, when are these taxes treated as paid to the IRS?

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?