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Exam 8: Individual Income Tax Computation and Tax Credits

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Question 31

Multiple Choice

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Which of the following statements best describes the deductions independent contractors may claim for valid business expenses?

A) for AGI deductions
B) from AGI deductions not subject to the two percent of AGI floor
C) from AGI deductions subject to a two percent of AGI floor
D) for AGI deductions limited to income from the business activities

E) A) and B)
F) All of the above

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Question 32

Multiple Choice

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Stephanie and Mitch are married and they file a joint tax return. Mitch received a slightly higher salary than Stephanie did during the year. Which of the following statements is true?

A) Stephanie and Mitch likely pay no tax marriage penalty nor receive a tax marriage benefit.
B) Stephanie and Mitch likely pay a tax marriage penalty.
C) Stephanie and Mitch likely receive a tax marriage benefit.
D) Stephanie and Mitch likely will pay a tax marriage penalty and receive a tax marriage benefit.

E) A) and D)
F) None of the above

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Question 33

Multiple Choice

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Which of the following statements regarding the child and dependent care credit is false?

For alternative minimum tax purposes, taxpayers are required to add back the regular tax standard deduction amount for their filing status whether or not they itemized deductions for regular tax purposes.

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

Hera earned $175,000 salary in 2016. Her husband, Zeus, earned $100,000 salary in 2016. Hera and Zeus file a joint tax return. How much FICA taxes will they owe in 2016?

Costa is a single taxpayer. His regular tax liability was $38,000. For 2016, he reported $190,000 of alternative minimum taxable income. What is his alternative minimum tax?

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

Cassy reports a gross tax liability of $1,000. She also claims $400 of nonrefundable personal credits, $700 of refundable personal credits, and $200 of business credits. What is Cassy's tax refund or tax liability due after applying the credits?

The American opportunity credit and lifetime learning credit are available to all taxpayers regardless of their income level.

Clarissa's gross tax liability for 2016 is $1,300. She has a $1,500 nonrefundable personal tax credit, a $750 business tax credit, and a $400 refundable personal tax credit. Her employer withheld $1,000 from her pay for taxes. What is her net tax due or refund for this year?

The child and dependent care credit entitles qualifying taxpayers to a credit equal to the full amount of qualified expenses.

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

Employees are allowed to deduct a portion of the FICA taxes they pay.

Which of the following could explain why large number of taxpayers are subject to (or could become subject to) AMT?

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 taxpayers (all age 40) are required to file a return?

For married couples, the .9 percent additional Medicare tax is based on the couple's combined wages.

Maria and Tony are married. They are preparing to file their 2016 tax return. If they were to file as single taxpayers, Maria and Tony would report $10,000 and $70,000 of taxable income, respectively. On their joint tax return, their taxable income is $80,000. How much of a marriage penalty or benefit will Maria and Tony experience in 2016?

In 2016, Athena reported $38,650 of taxable income. Of this, $33,650 came from her work at the local library and the remaining $5,000 was from capital gains to be taxed at preferential rates. Compute her tax liability for 2016 as a single taxpayer.