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Exam 8: Individual Income Tax Computation and Tax Credits

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Question 61

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If there is not enough gross tax liability to use the foreign tax credit, ________.

A) it expires unused
B) it is carried back two years or forward 20 years
C) it is carried back three years or forward five years
D) it is carried back one year or forward 10 years

E) B) and C)
F) C) and D)

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Question 62

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The tax rate schedules are set up to tax lower levels of income at higher tax rates than higher levels of income.

A) True
B) False

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Question 63

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Depending on the year, the original (unextended)due date for an individual's tax return may be after April 15.

Hester (age 17) is claimed as a dependent by his parents, Charlton and Abigail.In 2019, Hester received $10,000 of qualified dividends, and he received $12,000 from a part-time job.What is his taxable income for 2019?

An individual could pay 100 percent of her tax liability by the due date of her tax return and still be subject to underpayment tax penalties.

Maria and Tony are married.They are preparing to file their 2019 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 2019? (Use Tax rate schedules.)

Employees are not allowed to deduct FICA taxes they pay.

Trudy is Jocelyn's friend.Trudy looks after Jocelyn's four-year-old son during the day so Jocelyn can go to work.During the year, Jocelyn paid Trudy $4,000 to care for her son.What is the amount of Jocelyn's child and dependent care credit if her AGI for the year was $30,000? (Exhibit 8-9)

All else equal, a reduction in regular income tax rates would require more taxpayers to pay the alternative minimum tax.

During 2019, Jasmine (age 12) received $6,500 from a corporate bond.She also received $600 from a savings account established for her by her parents.Jasmine lives with her parents and she is their dependent.What is Jasmine's gross tax liability? (Use the Estates and trusts and Tax rate schedules.)

Hera wants to reduce her income tax liability by shifting some of her income to her 10-year-old daughter (a dependent), Athena.Last year, Hera gifted corporate bonds to Athena.This year, Athena received $1,550 in interest income from the bonds.What amount of tax will Athena pay on the interest income?

Which of the following suggests that a working taxpayer is an independent contractor rather than an employee?

The earned income credit is sometimes referred to as a negative income tax.

In 2019, John (52 years old)files as a head of household with one 18-year old dependent (qualifying)child.John is eligible to claim a $700 American opportunity credit for the year.John did not have any taxes withheld by his employer during the year and he did not make any estimated tax payments.After taking credits into account, what is the amount of John's taxes payable or refund, assuming that his AGI is $26,000 (all from salary)and his taxable income is $8,000?

Which of the following statements regarding credits is correct?

Which of the following statements regarding late filing penalties and/or late payment penalties is true?

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

Miley, a single taxpayer, plans on reporting $30,475 of taxable income this year (all of her income is from a part-time job) .She is considering applying for a second part-time job that would give her an additional $10,000 of taxable income.By how much will the income from the second job increase her tax liability? (Use the Tax rate schedules.)

If a married couple has one primary breadwinner, filing a joint return will likely result in a marriage penalty.

During all of 2019, Mr.and Mrs.Clay lived with their four children (all are under the age of 17).They provided over one-half of the support for each child.Mr.and Mrs.Clay file jointly for 2019.Neither is blind, and both are under age 65.They reported the following tax-related information for the year.(Use the tax rate schedules) $\begin{array}{llcc} \text {Salary income } &\$125,000 \\ \text {Prize from local radio station } &1,500\\ \text {Medical expenses (no health insurance) } &4,000\\ \text {Real estate taxes } &4,200\\ \text { Alimony paid by Mr. Clay (divorced in 2015) } &12,000\\ \text {State income taxes withheld in 2019 } &1,800\\ \text { State income taxes paid with 2019 tax return (return was filed in April } & \\ \text { 2020) } &1,500\\ \text {Federal incometax withholding } &7,500\\ \text {Qualified home mortgage interest (acquisition debt of \$ 300,000) } &15,000\\ \text { Charitable contributions } &4,000\\\end{array}$ 1.What are the Clays' taxes payable or refund due? (Ignore the alternative minimum tax.) 2.What are the Clays' tentative minimum tax and alternative minimum tax?