Deck 14: Special Tax Computation Methods, tax Credits, and Payment of Tax

Question 1

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

Answer 1

True

Question 2

The present AMT applies to individuals,corporations,estates,and trusts.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

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 6

A self-employed individual has earnings from his business of $300,000.For the earnings in excess of the $113,700,he will only have to pay the 2.9% Medicare tax.

Question 7

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

Question 8

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

Question 9

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

Question 10

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 11

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

Question 12

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

Question 13

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

Question 14

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 15

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

Question 16

An example of an AMT tax preference is a portion of the excluded gain on qualified small business corporation stock (Sec.1202 stock).

Question 17

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

Question 18

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

Question 19

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 20

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

Question 21

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

Question 22

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

Question 23

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 24

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 25

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

Question 26

In 2013 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)$7,800.
C)$48,250.
D)$80,800.

Question 27

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

Question 28

The general business credit is a refundable credit.

Question 29

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 30

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

Question 31

Jake and Christina are married and file a joint return for 2013 with taxable income of $100,000 and tax preferences and adjustments of $20,000 for AMT purposes.Their regular tax liability is $16,858.What is the amount of their total tax liability?

A)$6,666
B)$10,192
C)$16,858
D)$27,050

Question 32

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 33

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

Question 34

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

Question 35

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 36

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

Question 37

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

Question 38

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 39

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 40

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

Question 41

Shawn has a regular tax liability of $13,429,taxable income of $70,000,tax preferences of $25,000,and positive adjustments attributable to limitations on itemized deductions of $15,000 this year.Shawn is single and takes a $3,900 personal exemption for herself only.Shawn's alternative minimum tax for 2013 is

A)$0.
B)$2,691.
C)$16,185.
D)None of the above.

Question 42

Self-employment taxes include components for

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

Question 43

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

A)OASDI
B)FICA
C)FUTA
D)Medicare hospital insurance

Question 44

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 2013 is

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

Question 45

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 46

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 47

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 48

Reva and Josh Lewis had alternative minimum taxable income of $350,000 in 2013 and file a joint return.For purposes of computing the alternative minimum tax,their exemption is

A)$31,775.
B)$51,900.
C)$49,025.
D)$80,800.

Question 49

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 50

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 51

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 52

In computing AMTI,adjustments are

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

Question 53

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 54

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 55

In computing AMTI,tax preference items are

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

Question 56

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)$855
C)$1,125
D)$3,625

Question 57

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 58

Joe has $130,000 net earnings from a sole proprietorship.Joe's self-employment tax (rounded)for 2013 is

A)$17,581.
B)$18,368.
C)$19,890.
D)None of the above.

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

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 2013?

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

Question 61

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 62

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 63

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 64

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 65

Evan and Barbara incurred qualified adoption expenses in 2012 of $6,000,and then incurred $7,500 more in 2013 when the adoption of their child became final.Their 2012 AGI was $110,000 and their 2013 AGI was $100,000.The allowable adoption credit is

A)$12,970 in 2013.
B)$13,500 in 2013.
C)$6,000 in 2012 and $6,970 in 2013.
D)$6,000 in 2012 and $7,500 in 2013.

Question 66

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 67

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 2013 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 2013 is

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

Question 68

Unused foreign tax credits are carried back and forward how many years when the limitation is not exceeded?

A)back one and forward five
B)back one and forward ten
C)back three and forward five
D)back three and forward ten

Question 69

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.

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 $12,000.What is the corporation's foreign tax credit?

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

Question 71

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 72

Which of the following statements regarding the Work Opportunity Tax Credit (WOTC)for hiring veterans is not correct?

A)The amount of qualifying wages varies based on length of unemployment after leaving active duty.
B)The amount of qualifying wages varies based on whether the veteran has a service-related disability.
C)Eligibility for the credit is based on whether the veteran served in a combat zone.
D)All of the above statements are correct.

Question 73

Lee and Whitney incurred qualified adoption expenses in 2012 of $2,000,and then incurred $7,000 more in 2013 when the adoption of their special needs child became final.Their 2012 AGI was $120,000 and their 2013 AGI was $140,000.The allowable adoption credit is

A)$ 7,000 in 2012.
B)$ 9,000 in 2013.
C)$12,970 in 2013.
D)$2,000 in 2012 and $7,000 in 2013.

Question 74

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 75

The general business credit includes all of the following with the exception of

A)research credit.
B)disabled access credit.
C)foreign tax credit.
D)credit for rehabilitation expenditure.

Question 76

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 77

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 78

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 79

Kerry is single and has AGI of $25,000 in 2013.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 80

In the fall of 2013,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)$2,000.