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Exam 7: Individual Income Tax Computation and Tax Credits

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Question 41

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Costa is a single taxpayer. His regular tax liability was $38,000. For 2014, he reported $190,000 of alternative minimum taxable income. What is his alternative minimum tax? [Use 2014 AMT Exemption amount]

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Question 42

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Alton reported net income from his sole proprietorship of $90,000. To determine his self employment tax, he would multiply $90,000 by the self-employment tax rate.

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Question 43

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Atlas earned $17,300 from his sole proprietorship in 2014. This was his only source of income. How much in self-employment taxes will Atlas be able to deduct?

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

Jocelyn, a single taxpayer, had $742,000 of taxable income in 2014. All of the income is ordinary. What is her tax liability for the year?

Hera earned $175,000 salary in 2014. Her husband, Zeus, earned $100,000 salary in 2014. Hera and Zeus file a joint tax return. How much FICA taxes will they owe in 2014?

Which of the following statements accurately describes the alternative minimum tax rate(s) ?

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

Which of the following statements regarding the child and dependent care credit is true?

Hestia (age 17) is claimed as a dependent by her parents, Rhea and Chronus. In 2014, Hestia received $1,000 of interest income from a corporate bond that she owns. In addition, she has earned income of $200. What is her taxable income for 2014?

Taxpayers are not required to file a tax return unless their gross income passes a certain threshold. This threshold is generally the ________.

Assume Georgianne underpaid her estimated tax liability by $150 in the first quarter, $500 in the second quarter, $400 in the third quarter, and $200 in the fourth quarter. Calculate her underpayment penalty for the year, assuming the federal short-term interest rate is five percent.

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?

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

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?

Paul and Melissa plan on filing jointly in 2014. For the year, the couple reported taxable income of $130,000. What is their gross tax liability?

Which of the following statements regarding credits is correct?

The taxable income levels in the married filing jointly tax rate schedule are _______ those in the married filing separately schedule.

Lexa 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 and $943 of Medicare tax. In the second half of the year, she was self-employed and she reported $180,000 of self-employment income on her ScheduleC. What amount of self-employment taxes is Lexa required to pay? $11,549. $\begin{array}{c}\begin{array}{|l|}\hlineDescription\\\hline\text{(1) Social Security wage base limit less}\\ \text{employee compensation subject to}\\ \text{Social Security tax}\\\hline\text{(2) Net earnings from self-employment}\\\hline\text{(3) Social Security portion of}\\ \text{selfemployment tax}\\\hline\text{(4) Employer pertion of Medicare tax on}\\\text{the self-employment income}\\\hline\text{(5) Sum of taxpayer's compensation and net}\\\text{earnings from self-employment}\\\hline\text{(6) Lesser of [Step (5) amount or \$ 200,000] }\\ \text{x 1.45 \%}\\ \hline\text{(7) Greater of [(a) zero or (b) the amount}\\ \text{from \$ t e p(5) minus \$ 200,000] x 2.35 \%}\\ \hline\text{(8) Steps (6)+(7) - Medieare taxes}\\ \text{withheld by Lexa's employer. This is the}\\ \text{employee portion of Medicare tax}\\\text{on the self-employment income.}\\\hline\text{(9) Steps (3)+(4)+(8)}\\ \hline\end{array}\begin{array}{l|}\hline\text { Amount } \\\hline\$ 52,000 \\\\\\\hline{166,230}\\\hline{6,448} \\\\\hline2,410 \\\\\hline231,230 \\\\\hline2,900 \\\\\hline734 \\\\\hline2,691 \\\\\\\\\hline11,549 \\\hline\end{array}\begin{array}{l|}\hlineExplanation\\\hline\text{\$ 117,000-\$ 65,000 , Firnited to \$ 0}\\\\\\ \hline \$ 180,000 \times 92.35 \% \\\hline\text{Lesser of [ Step (1) or (2)] x 12.4 \%} \\\\\hlineStep (2) \times 1.45 \% \\\\\hline\$ 65,000+ Step (2) \\\\\hline 200,000 \times 1.45 \% \\\\\hline31,230 \times 2.35 \% \\\\\hline2,900+734-943 \\\\\\\\\hline\\\hline\end{array}\end{array}$

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