Question 1

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

Accepted Answer

A) The top AMT marginal rate is higher than the top regular tax marginal tax rate. 
B) The AMT rates represent a progressive tax rate structure. 
C) The AMT rate is the same rate for all taxpayers. 
D) None of the choices are correct.

Question 2

The computation of the alternative minimum tax base begins with regular taxable income. Which of the following is not part of the formula for computing the alternative minimum tax base?

Accepted Answer

A) Subtract state income taxes paid 
B) Add the standard deduction amount if used for regular tax 
C) Subtract the AMT exemption amount (if any) 
D) Add back tax-exempt interest from a private activity bond not issued in 2009 or 2010

Question 3

Employees must pay both Social Security tax and Medicare tax on the full amount of their wages no matter the amount of their wages.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following statements about estimated tax payments and underpayment penalties is true for individual taxpayers?

Accepted Answer

A) Taxpayers who have paid their full tax liability by the original tax return due date are protected from underpayment penalties. 
B) Taxpayers who have paid their full tax liability by the extended tax return due date are protected from underpayment penalties. 
C) Taxpayers who have uneven income streams can pay estimated tax quarterly in uneven amounts and not be susceptible to underpayment penalties. 
D) Taxpayers who have paid their required amount of estimated tax, even though not on time, are protected from underpayment penalties.

Question 5

During 2020, Montoya (age 15)received $2,230 from a corporate bond. He also received $630 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?

Accepted Answer

A) $0 
B) $2,230 
C) $2,860 
D) $1,760

Question 6

All else equal, taxpayers are more likely to be classified as employees rather than independent contractors if they are allowed to determine their own working hours and work without frequent oversight.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements regarding the child tax credit is false?

Accepted Answer

A) The child for whom the credit is claimed must be under the age of 15 at the end of the year. 
B) The credit is subject to phase-out based on the taxpayer's AGI. 
C) The full credit for a child who qualifies is $2,000. 
D) The child for whom the full credit is claimed must meet the definition of a qualifying child.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Harmony is single and was self-employed for the first half of 2020, earning $18,000 of Schedule C (business)net income. During the second half of the year, she began working as an employee and earned $38,000 in salary. What amount of self-employment taxes is Harmony required to pay?

Accepted Answer

The answer of Harmony is single and was self-employed for...

Question 10

Hestia (age 17)is claimed as a dependent by her parents, Rhea and Chronus. In 2020, 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 2020?

Accepted Answer

A) $0 
B) $100 
C) $650 
D) $1,200

Question 11

Apollo is single and his AMT base is $100,250. This amount includes $500 of qualified dividends (the dividends were taxed at 15 percent in determining the regular tax liability). What is Apollo's tentative minimum tax?

Accepted Answer

The answer of Apollo is single and his AMT base...

Question 12

Hester (age 17)is claimed as a dependent by his parents, Charlton and Abigail. In 2020, Hester received $10,000 of qualified dividends, and he received $13,000 from a part-time job. What is his taxable income for 2020? (Standard deduction)

Accepted Answer

A) $23,000 
B) $21,900 
C) $10,600 
D) $9,650

Question 13

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.

Accepted Answer

A) True 
 B)False

Question 14

Maria and Tony are married. They are preparing to file their 2020 tax return. If they were to file as single taxpayers, Maria and Tony would report $40,000 and $60,000 of taxable income, respectively. On their joint tax return, their taxable income is $100,000. How much of a marriage penalty or benefit will Maria and Tony experience in 2020? (Use tax rate schedules.)

Accepted Answer

The answer of Maria and Tony are married. They are...

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

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.

Question 17

Wolfina's twins, Romulus and Remus, finished their first year of school at an accredited university in 2020. 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 tax credit may she claim?

Accepted Answer

The answer of Wolfina's twins, Romulus and Remus, finished their...

Question 18

Sam is 30 years old. In 2020, 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 2020? (Use Exhibit 8-10)

Accepted Answer

The answer of Sam is 30 years old. In 2020,...

Question 19

Jamie is single. In 2020, she reported $105,000 of taxable income, including a long-term capital gain of $5,500. What is her gross tax liability? (Round your answer to the nearest whole dollar amount.)(Use the tax rate schedules, long-term capital gains tax brackets.)

Accepted Answer

A) $15,750 
B) $19,405 
C) $18,785 
D) $18,035

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 8: Individual Income Tax Computation and Tax Credits

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

The computation of the alternative minimum tax base begins with regular taxable income. Which of the following is not part of the formula for computing the alternative minimum tax base?

Employees must pay both Social Security tax and Medicare tax on the full amount of their wages no matter the amount of their wages.

Which of the following statements about estimated tax payments and underpayment penalties is true for individual taxpayers?

During 2020, Montoya (age 15) received $2,230 from a corporate bond. He also received $630 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?

All else equal, taxpayers are more likely to be classified as employees rather than independent contractors if they are allowed to determine their own working hours and work without frequent oversight.

Which of the following statements regarding the child tax credit is false?

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

Harmony is single and was self-employed for the first half of 2020, earning $18,000 of Schedule C (business)net income. During the second half of the year, she began working as an employee and earned $38,000 in salary. What amount of self-employment taxes is Harmony required to pay?

Hestia (age 17) is claimed as a dependent by her parents, Rhea and Chronus. In 2020, 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 2020?

Apollo is single and his AMT base is $100,250. This amount includes $500 of qualified dividends (the dividends were taxed at 15 percent in determining the regular tax liability). What is Apollo's tentative minimum tax?

Hester (age 17) is claimed as a dependent by his parents, Charlton and Abigail. In 2020, Hester received $10,000 of qualified dividends, and he received $13,000 from a part-time job. What is his taxable income for 2020? (Standard deduction)

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.

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

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

Sam is 30 years old. In 2020, 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 2020? (Use Exhibit 8-10)

Jamie is single. In 2020, she reported $105,000 of taxable income, including a long-term capital gain of $5,500. What is her gross tax liability? (Round your answer to the nearest whole dollar amount.) (Use the tax rate schedules, long-term capital gains tax brackets.)

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