Exam 1: Introduction to Taxation

Chloe and Bill, both single with no dependents, plan to marry either immediately before or immediately after year-end. Chloe's income for 2018 is $89,000 and Bill's is $86,000 before subtracting $12,000 for the standard deduction for each. Would they have a marriage penalty or a marriage benefit if they married at the end of 2018?

Which of the following is never included in computing gross income?

A hidden tax is one that is included with a payment but not specifically identified.

Kate received $130,000 in salary in 2018. What is her FICA tax if the Medicare rate is 1.45% and the Social Security rate is 6.2% on a maximum of $128,400 in 2018?

Walter is married and files a joint return. If his adjusted gross income is $64,000 and he has $32,850 of deductions in 2018. What is his taxable income? What is his income tax liability?

How much income tax must the Benton Trust pay in 2018 if its taxable income (after all deductions) is $4,600?

Which of the following is not a characteristic of an S corporation?

Jerry and Matt decide to form a business. Jerry will contribute $4,200 for a 35% interest and Matt will contribute $7,800 for a 65% interest. The business will take out a $25,000 loan to cover the balance of their working capital needs. They expect that the business will have a loss of $38,000 for the first year. In the second year, the business will have a profit of $52,000 and it will distribute $5,200 to Matt and $2,800 to Jerry. Jerry is in the 32% marginal tax bracket and Matt is in the 24% marginal tax bracket. Their marginal tax brackets will not change as a result of profit or loss from this business. How much tax will Matt pay in the second year (rounded to the nearest dollar) due to this business if they organize the business as an S corporation?

In which of the following entities may an owner-employee benefit from all employee tax-free fringe benefits?