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Exam 8: Individual Income Tax Computation and Tax Credits

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Question 81

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Which of the following statements concerning a comparison between employees and independent contractors is most accurate?

A) Employees and independent contractors deduct business expenses as miscellaneous itemized deductions.
B) While employees are typically eligible for nontaxable fringe benefits from employers, independent contractors are not.
C) Employers are required to withhold either FICA or self employment taxes from compensation paid to employees and compensation paid to independent contractors.
D) Employers typically withhold federal income taxes from compensation paid to employees and to independent contractors.

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

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Question 82

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

A) True
B) False

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Question 83

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Tax rate schedules are provided for use by (relatively) higher income taxpayers while the tax tables are provided for use by (relatively) lower income taxpayers.

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 $123,000 for 2016?

Long-term capital gains, dividends, and taxable interest income are all taxed at preferential rates.

Sam is 30 years old. In 2016, he reported an AGI of $12,000, all from his job as a server at the local café. He is single and has no dependents. What amount of earned income credit may he claim in 2016?

What is the underpayment penalty rate that taxpayers pay when they underpay their estimated taxes?

The kiddie tax does not apply to children over 24 years old at the end of the tax year.

Trudy is Jocelyn's friend. Trudy looks after Jocelyn's four-year-old son during the day so Jocelyn can go to work. During the year, Jocelyn paid Trudy $4,000 to care for her son. What is the amount of Jocelyn's child and dependent care credit if her AGI for the year was $30,000?

Which of the following is not a true statement about the American opportunity credit (AOC) and lifetime learning credits?

Which of the following is not typical of taxpayers who are most likely affected by the AMT?

The Olympians have three children. The kiddie tax applies to unearned income received by which of the following children?

Regular taxable income is the starting point for determining the alternative minimum tax.

Which of the following statements regarding the self-employment tax is most accurate?

All else equal, a reduction in regular income tax rates would require more taxpayers to pay the alternative minimum tax.

Wolfina's twins, Romulus and Remus, finished their first year of school at an accredited university in 2016. She paid $10,000 in qualified educational expenses for Romulus and $2,000 of qualifying expenses for Remus. Wolfina is a head of household with an AGI of $85,000. What amount of American opportunity credit may she claim?

Employees are allowed to deduct a portion of the FICA taxes they pay.