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

A) True
B) False

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Question 62

Multiple Choice

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Which of the following taxpayers (all age 40) is/are required to file a return?

A) Jenny and Jim
B) Allen
C) Timmy
D) None of the choices are correct

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

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Question 63

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Cassy reports a gross tax liability of $1,130. She also claims $530 of nonrefundable personal credits, $765 of refundable personal credits, and $330 of business credits. What is Cassy's tax refund or tax liability due after applying the credits? (Round your answer to the nearest whole dollar amount.)

During 2020, Jasmine (age 12) received $6,500 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 claimed as a dependent in their tax return. Whatis Jasmine's gross tax liability? ( Use Tax Rate Schedule, Standard deduction , Estates and Trusts.)

Which of the following is typical of taxpayers who are most likely affected by the AMT?

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)

Linda is a qualifying widow in 2020. In 2020, she reports $80,000 of taxable income (all ordinary) . What is her gross tax liability using the tax rate schedules? (Use the Tax rate schedules.)

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

Depending on the year, the original (unextended)due date for an individual's tax return may be after April 15.

For married couples, the additional Medicare tax is based on the couple's combined wages.

Montague (age 15) is claimed as a dependent by his parents, Matt and Mary. In 2020, Montague received $5,160 of qualified dividends, and he received $960 from a part-time job. What is his taxable income for 2020?

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

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? (Round intermediate calculations and final answer to the nearest dollar.)

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

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

In 2020, 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 2020?

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.

Taxpayers are not allowed to deduct the standard deduction for alternative minimum tax purposes.

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?

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