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Exam 8: Individual Income Tax Computation and Tax Credits

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Question 1

True/False

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

A) True
B) False

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Question 2

Multiple Choice

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

A) An extension of time to file the tax return protects a taxpayer from late payment penalties as long as the tax is paid by the extended due date of the return.
B) The penalty rate for late filing penalties is less than the penalty rate for late payment penalties.
C) If a taxpayer has not paid the full tax liability by the original due date of the return and the taxpayer has not filed a tax return by the due date of the return, the maximum late filing and late payment penalty will be no greater than the late filing penalty by itself.
D) None of the choices are correct.

E) A) and D)
F) A) and C)

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Question 3

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Maria and Tony are married.They are preparing to file their 2017 tax return.If they were to file as single taxpayers,Maria and Tony would report $40,000 and $60,000 of taxable income,respectively.On their joint tax return,their taxable income is $100,000.How much of a marriage penalty or benefit will Maria and Tony experience in 2017? (Use tax rate schedule in the text.)

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

Keith and Nicole are married filing joint with two daughters who qualify as dependents.Their gross income for 2017 is $21,100.Are they required to file a tax return? How do you know this without memorizing the gross income thresholds? In 2017,the standard deduction for taxpayers filing a joint return is $12,700 and the personal exemption is $4,050.

Which of the following does not affect the amount of the earned income credit?

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

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.

Kaelyn's mother,Judy,looks after Kaelyn's four-year-old twins so Kaelyn can go to work (she drops off and picks up the twins from Judy's home every day) .Since Judy is a relative,Kaelyn made sure,for tax purposes,to pay her mother the going rate for child care ($6,300 for the year) .What is the amount of Kaelyn's child and dependent care credit if her AGI for the year was $36,000? (Exhibit 8-9 in the text)

Employees must pay both Social Security tax and Medicare tax on the full amount of their wages no matter the amount of their wages.

Individuals may file for and receive a six-month extension of time to file their tax return and pay their taxes without penalty.

Jerusha is married and she files a separate tax return in 2017.She claims two exemptions (2 × 4,050 = $8,100).She claimed the standard deduction for regular tax purposes ($6,350).She had no other adjustments.Her regular taxable income was $67,800.What is Jerusha's AMTI?

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

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

The child tax credit is subject to phase-out based on the taxpayer's AGI.

The computation of the alternative minimum tax base begins with regular taxable income.Which of the following is not part of the formula for computing the alternative minimum tax base?

The alternative minimum tax is the AMT base multiplied by the AMT rate.

In 2017,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.She claimed exemptions for herself and her son,Hermes,($4,050 each) .What is Maia's alternative minimum taxable income?

Which of the following is not one of the general tax credit categories?

Johann had a gross tax liability of $22,508 in 2017,but his employer only withheld taxes of $19,500.Johann's gross tax liability was $21,000 in 2016.Calculate Johann's under/overpayment in each quarter for 2017 tax purposes.