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Exam 7: Individual Income Tax Computation and Tax Credits

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Question 71

Multiple Choice

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During 2014, Montoya (age 15) received $2,200 from a corporate bond. He also received $600 from a savings account established for him by his parents. Montoya lives with his parents and he is their dependent. What is Montoya's taxable income?

A) $0
B) $2,200
C) $2,800
D) $1,800

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

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Question 72

Multiple Choice

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

A) As withheld
B) As the employee requests on his/her W-4 form
C) Evenly throughout the year
D) On April 15

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

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Question 73

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Generally, income from an active trade or business is subject to the 3.8% Net Investment Income tax.

Candace is claimed as a dependent on her parent's tax return. Her parents' ordinary income marginal tax rate is 33%. In 2014, 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 child and dependent care credit entitles qualifying taxpayers to a credit equal to the full amount of qualified expenses.

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

All else equal, taxpayers are more likely to be classified as employees rather than independent contractors if they are allowed to determine their own working hours and work without frequent oversight.

If a married couple has one primary breadwinner, filing a joint return will likely result in a marriage penalty.

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?

Which of the following items is not added back to regular taxable income in computing alternative minimum taxable income?

Which of the following is not true of the lifetime learning credit?

The American opportunity credit is available only for those students who are in their first or second year of postsecondary education.

Miley, a single taxpayer, plans on reporting $27,900 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 is not a barrier to income shifting among family members?

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

Baker earned $225,000 of salary as an employee in 2014. How much should his employer have withheld from his paycheck for FICA taxes (rounded to the nearest whole dollar amount) ?

The lifetime learning credit can be used toward the cost of any course of instruction to acquire or improve a taxpayer's job skills, no matter the age of the taxpayer.

Why would a taxpayer file a tax return if not required to do so?

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

Linda is a qualifying widow in 2014. In 2014, she reported $75,000 of taxable income (all ordinary) . What is her gross tax liability using the tax rate schedules?