Deck 28: Special Tax Computation Methods, tax Credits, and Payment of Tax

Question 1

All tax-exempt bond interest income is classified as an AMT preference.

Answer 1

False

Question 2

Self-employed individuals are subject to the self-employment tax if their net earnings are more than the personal exemption amount.

Answer 2

False

Question 3

An example of an AMT tax preference is the excess of MACRS depreciation on equipment over depreciation computed by using the the 150% declining balance method.

Answer 3

False

Question 4

For purposes of the limitation on qualifying expenses for the child and dependent care credit,a spouse who is either a full-time student or is incapacitated is deemed to have earned income of $250 per month,or $500 per month if there are two or more qualifying individuals in the household.

Question 5

When a husband and wife file a joint return and both have self-employment income,the self-employment tax must be computed separately.

Question 6

One-half of the self-employment tax imposed is allowed as a for AGI deduction.

Question 7

A self-employed individual has earnings from his business of $300,000. For the earnings in excess of the $117,000,he will only have to pay the 2.9% Medicare tax.

Question 8

A taxpayer who paid AMT in prior years,but is not subject to the AMT in the current year,may be entitled to an AMT credit against his regular tax liability in the current year.

Question 9

Medical expenses in excess of 10% of AGI are deductible when computing AMT.

Question 10

If an individual is classified as an employee,the employer is required to withhold the employee's share of the FICA tax and to provide a matching amount.

Question 11

The child and dependent care credit provides relief for working taxpayers who pay for care for younger children or an incapacitated dependent or spouse.

Question 12

Casualty and theft losses in excess of 10% of AGI are deductible for AMT purposes.

Question 13

The adoption credit based on qualified adoption expenses is generally allowed in the year the adoption is finalized.

Question 14

For purposes of the AMT,only the foreign tax credit and refundable personal credits are allowed to reduce the tentative minimum tax.

Question 15

The alternative minimum tax applies to individuals,corporations,estates,and trusts.

Question 16

The alternative minimum tax applies to individuals only if it exceeds the taxpayer's regular income tax liability.

Question 17

For purposes of the AMT,the standard deduction,but not the personal and dependency exemptions,is allowed.

Question 18

Nonrefundable credits may offset tax liability but may not result in additional payments to the taxpayer.

Question 19

If an individual is an employee and also has self-employment income,the maximum tax base for computing self-employment tax is reduced by the wages that are subject to the FICA tax.

Question 20

For purposes of the child and dependent care credit,qualifying employment-related expenses cannot include payments to a relative.

Question 21

Bob's income can vary widely from year-to-year because much of his compensation comes from sales commissions and bonuses.It generally is in the $200,000 to $300,000 range.To minimize the risk of underpayment penalties for estimated tax he should pay in,through payroll withholding and estimated tax payments,100% of the prior year tax liability.

Question 22

The health insurance premium assistance credit is designed to help lower and middle income taxpayers who purchase their own health insurance insurance directly from an insurance company or through a state or federal exchange.

Question 23

Jake and Christina are married and file a joint return for 2014 with taxable income of $100,000 and tax preferences and adjustments of $20,000 for AMT purposes.Their regular tax liability is $16,713.What is the amount of their total tax liability?

A)$6,859
B)$9,854
C)$16,713
D)$26,567

Question 24

The general business credits are refundable credits.

Question 25

In lieu of a foreign tax credit,a taxpayer may elect to take a deduction for foreign taxes paid or accrued.

Question 26

If an employee has more than one employer during the year,all employers must withhold federal income taxes but only one employer must withhold FICA tax.

Question 27

The qualified retirement savings contributions credit is based on a maximum contribution of $2,000.

Question 28

Nonrefundable personal tax credits are allowed against the taxpayer's tax liability before other credits are claimed.

Question 29

Research expenses eligible for the research credit include costs that are incident to the development or improvement of a product or component.

Question 30

A credit for rehabilitation expenditures is available to a business for the purchase price of a building originally placed in service before 1936.

Question 31

The foreign tax credit is equal to the smaller of foreign taxes paid or accrued in the tax year or the portion of the U.S.income tax liability attributable to the income earned in all foreign countries.

Question 32

Brad and Shelly's daughter is starting her freshman year of college. Brad and Shelly will be able to claim the American Opportunity Tax Credit for a percentage of the cost of tuition and room and board.

Question 33

A taxpayer's tentative minimum tax exceeds his net income tax so he will be paying the alternative minimum tax this year.The taxpayer has a sole proprietorship through which he has earned general business credits.The taxpayer can reduce his AMT to the extent of his general business credits.

Question 34

If estimated tax payments equal or exceed 100% of the actual tax liability for the prior year,there is generally (assuming AGI less than or equal to $150,000)no penalty for underpayment of estimated taxes.

Question 35

Qualified tuition and related expenses eligible for the American Opportunity Tax Credit are limited to those incurred the first two years of postsecondary education.

Question 36

The earned income credit is refundable only if a tax has been withheld.

Question 37

The earned income credit is available only to taxpayers with qualifying children.

Question 38

The nonrefundable disabled access credit is available to eligible small businesses for expenditures incurred to make existing business facilities accessible to disabled individuals.

Question 39

To claim the Lifetime Learning Credit,a student must take at least one-half of a full-time course load during the year.

Question 40

Taxpayers with income below phase-out amounts are allowed a child credit of $1,000 for each qualifying child under age 17.

Question 41

John has $55,000 net earnings from a sole proprietorship.John is also employed by a major corporation and is paid $25,000.John's self-employment tax (rounded)for 2014 is

A)$3,886.
B)$4,208.
C)$7,771.
D)$8,415.

Question 42

Harley's tentative minimum tax is computed by multiplying the AMT tax rates by her

A)taxable income.
B)alternative minimum tax base.
C)alternative minimum taxable income.
D)tentative alternative taxable income.

Question 43

If an individual is liable for self-employment tax,a portion of the self-employment tax is

A)a for AGI deduction.
B)from AGI as an itemized deduction.
C)a Schedule C business expense.
D)nondeductible.

Question 44

All of the following are self-employment income except

A)net income of a sole proprietorship.
B)dividends received by a corporate shareholder.
C)fees received for serving as a director of a corporation.
D)distributive share of partnership income from a partnership operating a business.

Question 45

In computing the alternative minimum taxable income,no deduction is allowed for

A)alimony.
B)moving expenses.
C)personal exemptions.
D)individual retirement account contributions.

Question 46

All of the following statements regarding self-employment income/tax are true except:

A)The self-employment tax is imposed on net earnings from self-employment over $400.
B)Self-employment tax is computed separately for married individuals filing joint returns.
C)Independent contractors are subject to self-employment tax on the amount of net earnings from the self-employment activity.
D)Employees who have a business in addition to their regular employment are not subject to the self-employment tax since FICA is withheld on their wages.

Question 47

In computing AMTI,adjustments are

A)limited.
B)added only.
C)subtracted only.
D)either added or subtracted.

Question 48

In computing AMTI,tax preference items are

A)excluded.
B)added only.
C)subtracted only.
D)either added or subtracted.

Question 49

In 2014 Charlton and Cindy have alternative minimum taxable income of $130,000 and file a joint return.For purposes of computing the alternative minimum tax,their exemption is

A)$0.
B)$7,900.
C)$52,800.
D)$82,100.

Question 50

Self-employment taxes include components for

A)Medicare hospital insurance and SUTA.
B)Social Security and FUTA.
C)FICA and FUTA.
D)Social Security and Medicare hospital insurance.

Question 51

Hong earns $127,300 in her job as a physician's assistant.She also has her own business selling cosmetics.This business generated $10,000 of earnings.What is Hong's self-employment tax for 2014?

A)$268
B)$290
C)$1,412
D)$1,530

Question 52

Suzanne,a single taxpayer,has the following tax information for the current year. • Charitable contribution of real property with a FMV of $25,000 (adjusted basis $20,000)for which a $25,000 deduction was taken.
• Research and experimental expenses of $40,000 deducted in full for regular tax.
Suzanne's total tax preferences and adjustments equals

A)$5,000.
B)$36,000.
C)$41,000.
D)$45,000.

Question 53

Joe has $130,000 net earnings from a sole proprietorship.Joe's self-employment tax (rounded)for 2014 is

A)$17,990.
B)$18,368.
C)$19,890.
D)None of the above.

Question 54

Ava has net earnings from self-employment of $125,000. She also earned salary of $170,000 from a job held earlier in the year.How much Additional Medicare Tax will be owed on the self-employment income?

A)$0
B)$769
C)$855
D)$3,625

Question 55

A wage cap does not exist for which of the following self-employment taxes?

A)Social Security tax
B)FICA
C)FUTA
D)Medicare hospital insurance

Question 56

Reva and Josh Lewis had alternative minimum taxable income of $350,000 in 2014 and file a joint return.For purposes of computing the alternative minimum tax,their exemption is

A)$33,725.
B)$52,800.
C)$48,375.
D)$82,100.

Question 57

Lavonne has a regular tax liability of $13,356 on taxable income of $70,000. She also has tax preferences of $25,000 and positive adjustments attributable to limitations on itemized deductions of $15,000.Lavonne is single and takes a $3,950 personal exemption for herself only. Lavonne's alternative minimum tax for 2014 is

A)$0.
B)$2,543.
C)$16,271.
D)none of the above.

Question 58

All of the following are allowable deductions under the alternative minimum tax except

A)charitable contributions.
B)gambling losses.
C)qualified housing interest.
D)personal property taxes.

Question 59

Nonrefundable tax credits

A)only offset a taxpayer's tax liability.
B)may only be used if the taxpayer is receiving a refund.
C)can be carried back two years and carried forward 15 years if they exceed tax liability in the current year.
D)allow the excess over the taxpayer's tax liability to be paid to the taxpayer.

Question 60

Rex has the following AMT adjustments: -Depreciation of real property acquired in 1996 using MACRS is $22,000 while depreciation for AMT purposes is $15,000.
-R&E expenditures amounting to $60,000 are expensed.
The net adjustment is

A)$7,000.
B)$54,000.
C)$61,000.
D)$67,000.

Question 61

All of the following statements are true regarding the Lifetime Learning Credit except which one?

A)In order to qualify for the Lifetime Learning Credit,a student must be enrolled 1/2 time.
B)Qualifying expenses include those for tuition and related fees but not for room and board.
C)The Lifetime Learning credit may be claimed for any degree or nondegree course at a college or university that helps an individual acquire or improve their job skills.
D)The Lifetime Learning credit and the American Opportunity Tax credit may not be taken in the same tax year with respect to the same student's tuition and related fees.

Question 62

In the fall of 2014,James went back to school to earn a master of accountancy degree.He incurred $7,000 of qualified educational expenses and his modified AGI for the year was $40,000.His Lifetime Learning Credit is

A)$1,000.
B)$1,400.
C)$1,800.
D)$2,500.

Question 63

Carlotta,Inc.has $50,000 foreign-source income and $150,000 worldwide income.Its U.S.tax on its worldwide income is $42,000 and it paid foreign taxes of $12,000.What is the corporation's foreign tax credit?

A)$4,000
B)$12,000
C)$14,000
D)$42,000

Question 64

A corporation has $100,000 of U.S.source taxable income and $300,000 of foreign source taxable income from countries X and Y for a total worldwide taxable income of $400,000.Countries X and Y levy a total of $60,000 in foreign taxes upon the foreign source taxable income.U.S.taxes before credits are $140,000.The foreign tax credit limitation is

A)$35,000.
B)$60,000.
C)$80,000.
D)$105,000.

Question 65

Lee and Whitney incurred qualified adoption expenses in 2013 of $2,000,and then incurred $7,000 more in 2014 when the adoption of their child became final.Their 2013 AGI was $120,000 and their 2014 AGI was $140,000.The allowable adoption credit is

A)$ 7,000 in 2014.
B)$ 9,000 in 2014.
C)$13,190 in 2014.
D)$2,000 in 2013 and $7,000 in 2014.

Question 66

Jeffery and Cassie,who are married with modified AGI of $90,000,are sending their son to his first year of college.Their total tuition and related payments during 2014 amounted to $5,500.They have not taken advantage of any other type of tax benefit related to educational expenses.Their American Opportunity Tax Credit for 2014 is

A)$1,500.
B)$2,000.
C)$2,500.
D)$5,000.

Question 67

Marguerite and Josephus have two children,ages 13 and 10.Their modified AGI is $120,500.What is their child tax credit?

A)$900
B)$1,000
C)$2,000
D)None of the above.

Question 68

Which of the following is not a qualifying property for the residential energy efficient property (REEP)credit?

A)geothermal heat pumps
B)residential wind property
C)metal or asphalt roofs with special coatings
D)solar hot water heaters

Question 69

Which statement is correct?

A)Tax credits reduce tax liability on a dollar-for-dollar basis.
B)Tax deductions reduce tax liability on a dollar-for-dollar basis.
C)The benefit of a tax credit depends on the taxpayer's marginal tax rate.
D)Tax deductions are less valuable for high-income taxpayers than for low-income taxpayers.

Question 70

Carlotta,Inc.has $50,000 foreign-source income and $150,000 worldwide income.Its U.S.tax on its worldwide income is $42,000 and it paid foreign taxes of $16,000.What is the corporation's foreign tax credit?

A)$2,000
B)$14,000
C)$16,000
D)$42,000

Question 71

The maximum amount of the American Opportunity Tax Credit for each qualified student is

A)$1,500.
B)$2,000.
C)$2,500.
D)$3,000.

Question 72

Kerry is single and has AGI of $25,000 in 2014.During the year he contributes $5,000 to his Roth IRA.What is the amount of qualified retirement savings contributions credit to which he is entitled?

A)$200
B)$400
C)$800
D)$1,000

Question 73

Joe,who is single with modified AGI of $84,000,is sending his son to his first year of college.The total tuition and related payments during the year amounted to $18,000. Joe has not taken advantage of any other type of tax benefit related to educational expenses.His American Opportunity Tax Credit is

A)$ 0.
B)$1,000.
C)$1,500.
D)$2,500.

Question 74

Evan and Barbara incurred qualified adoption expenses in 2013 of $6,000,and then incurred $7,500 more in 2014 when the adoption of their child became final.Their 2013 AGI was $110,000 and their 2014 AGI was $100,000.The allowable adoption credit is

A)$13,190 in 2014.
B)$13,500 in 2014.
C)$6,000 in 2013 and $7,190 in 2014.
D)$6,000 in 2013 and $7,500 in 2014.

Question 75

Timothy and Alice,who are married with modified AGI of $90,000,are sending their daughter to her first year of college.Their total tuition and related payments during the year amounted to $13,000.In addition,their daughter received a $10,000 scholarship to cover tuition.They have not taken advantage of any other type of tax benefit related to educational expenses.Their American Opportunity Tax Credit is

A)$2,000.
B)$2,250.
C)$2,500.
D)$3,000.

Question 76

Bud and Stella are married,file a joint return,and have one child,age 3.Their combined AGI is $35,000.Bud and Stella incur $3,500 of child-care expenses during the current year.The child and dependent care credit is

A)$600.
B)$700.
C)$750.
D)$875.

Question 77

Max and Alexandra are married and incur $5,500 of qualifying expenses to care for their two children,ages 2 and 5.Max's earned income is $35,000 and Alexandra's earnings from a part-time job are $5,000.What is the amount of the qualifying expenses for purposes of computing the child and dependent care credit?

A)$3,000
B)$5,000
C)$5,500
D)$6,000

Question 78

Refundable tax credits

A)only offset a taxpayer's tax liability.
B)may only be used if the taxpayer is receiving a refund.
C)have all expired but may be reinstated with new tax legislation.
D)allow the excess over the taxpayer's tax liability to be paid to the taxpayer.

Question 79

Mark and Stacy are married,file a joint return,and have one child,age 3.Their combined AGI is $55,000.Mark and Stacy incur $3,500 of child-care expenses during the current year.Mark's employer reimburses him $1,500 under a qualified dependent care assistance plan.The child and dependent care credit is

A)$300.
B)$600.
C)$700.
D)$1,200.

Question 80

Marvin and Pamela are married,file a joint return,and have two children,ages 9 and 11.Their combined AGI is $65,000.Marvin's earned income is $40,000; Pamela's is $25,000.They incur $6,500 of child-care expenses to enable them to be employed during the current year.Their child and dependent care credit is

A)$1,200.
B)$1,300.
C)$1,800.
D)$6,000.