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Exam 8: Individual Income Tax Computation and Tax Credits

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Question 71

Multiple Choice

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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?

A) The Social Security limit applies to the salary but not to the self-employment income.
B) The Social Security limit applies to the self-employment income but not to the salary.
C) Salary is first applied against the Social Security limit and then self-employment income is applied against the Social Security limit.
D) Self-employment income is first applied against the Social Security limit and then salary is applied against the Social Security limit.

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

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Question 72

Multiple Choice

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

A) Deduct employer portion from AGI.
B) Deduct entire amount from AGI.
C) Deduct employer portion for AGI.
D) Deduct entire amount for AGI.
E) No deduction.

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

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Question 73

Multiple Choice

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Which of the following suggests that a working taxpayer is an independent contractor rather than an employee?

In 2016, John (52 years old) files as a head of household with one 18-year old dependent (qualifying) child. John is eligible to claim a $700 American opportunity credit for the year. John did not have any taxes withheld by his employer during the year and he did not make any estimated tax payments. After taking credits into account, what is the amount of John's taxes payable or refund assuming that his AGI is $26,000 (all from salary) and his taxable income is $9,000?

The alternative minimum tax base is typically ______ the regular income tax base.

Harmony reports a regular tax liability of $15,000 and tentative minimum tax of $17,000. Given just this information, what is her alternative minimum tax liability for the year?

Angelena files as a head of household. In 2016, she reported $51,000 of taxable income, including a $10,000 qualified dividend. What is her gross tax liability, rounded to the nearest whole dollar amount? (use the tax rate schedules)

Katlyn reported $300 of net income from her sole proprietorship. She is not required to pay self-employment tax.

Linda is a qualifying widow in 2016. In 2016, she reports $80,000 of taxable income (all ordinary) . What is her gross tax liability using the tax rate schedules?

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?

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

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

Harrison received a qualified dividend. Without knowing any additional facts, which of the following statements is true regarding the rate at which the dividend will be taxed to Harrison?

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

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

Baker earned $225,000 of salary as an employee in 2016. How much should his employer have withheld from his paycheck for FICA taxes? (rounded to the nearest whole dollar amount)

Jamie is single. In 2016, she reported $100,000 of taxable income, including a long-term capital gain of $5,000. What is her gross tax liability, rounded to the nearest whole dollar amount? (use the tax rate schedules)

Persephone has a regular tax liability of $12,475 and a tentative minimum tax of $11,500. Given just this information, what is her alternative minimum tax liability for the year?

Generally, income from an active trade or business is subject to the 3.8% net investment income tax.

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