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Exam 8: Individual Income Tax Computation and Tax Credits

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Question 1

Multiple Choice

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Which of the following statements regarding late filing penalties is true?

A) If a taxpayer fails to file a tax return, the late filing penalty will continue to grow until the taxpayer files the tax return.
B) The amount of the late filing penalty is the same for both fraudulent failure to file and non fraudulent failure to file.
C) Taxpayers who owe no tax as of the due date of their tax returns are not subject to late filing penalties even if they file late.
D) None of the above.

E) A) and C)
F) C) and D)

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C

Question 2

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Due to the alternative minimum tax rate structure, timing tax planning strategies are not effective under the alternative minimum tax system.

A) True
B) False

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Question 3

Multiple Choice

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Asteria earned a $25,500 salary as an employee in 2016. How much should her employer have withheld from her paycheck for FICA taxes? (rounded to the nearest whole dollar amount)

Which of the following statements regarding FICA taxes is true?

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

For alternative minimum tax purposes, taxpayers are allowed to deduct state income taxes but are not allowed to deduct charitable contributions.

Assume Georgianne underpaid her estimated tax liability by $150 in the first quarter, $500 in the second quarter, $400 in the third quarter, and $200 in the fourth quarter. Calculate her underpayment penalty for the year, assuming the federal short-term interest rate is five percent.

Happy, Sleepy, Grumpy, and Doc all did not make adequate estimated payments. Which of them will not owe underpayment penalties for 2016 given the following information?

Long-term capital gains, dividends, and taxable interest income are all taxed at preferential rates.

Which of the following is not true of the American opportunity credit?

The amount of expenditures eligible for the child and dependent care credit is the least of three amounts. Which of the following is not one of those amounts?

Lexa worked as an employee during the first half of the year earning $65,000 of salary. Lexa's employer withheld $4,030 of Social Security tax, $943 of Medicare tax, and $0 of .9 percent additional Medicare tax. In the second half of the year, she was self-employed and she reported $180,000 of self-employment income on her Schedule C.What amount of self-employment taxes is Lexa required to pay?

Harmony was self-employed for the first half of 2016, 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?

Sheryl's AGI is $250,000. Her current tax liability is $52,068. Last year, her tax liability was $48,722. She will not owe underpayment penalties if her total estimated tax payments are at least which of the following (rounded) amounts? (assume she makes the required payments each quarter)

For married couples, the Social Security wage base limitation applies separately to each spouse.

Which of the following is not a true statement about the American opportunity credit (AOC) and lifetime learning credits?

The child tax credit is subject to phase-out based on the taxpayer's AGI.

Which of the following items is not added back to regular taxable income in computing alternative minimum taxable income?

Sam is 30 years old. In 2016, 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 2016?

Both the width (or range) of the tax brackets (the amount of income taxed at a particular rate) in the tax rate schedules and the range of the tax rates in the tax rate schedules (the difference between the lowest tax rate and the highest tax rate) vary by filing status.