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Exam 8: Individual Income Tax Computation and Tax Credits

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Question 61

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Which of the following statements regarding credits is correct?

A) Business expenses are generally refundable credits.
B) Business credits that are generated in one year but are not utilized in that year expire.
C) Business credits that are generated in one year but are not utilized in that year may be carried forward to future years but not back to a prior year.
D) Business credits that are generated in one year but are not utilized in that year may be carried back to the previous year and then forward to future years.

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Question 62

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For taxpayers who receive both salary as an employee and self-employment income as an independent contractor in the same year, which of the following statements regarding FICA and self-employment taxes is most accurate?

A) The Social Security limit applies to the salary but not to the self-employment income.
B) The Social Security limit applies to the self-employment income but not to the salary.
C) Salary is first applied against the Social Security limit and then self-employment income is applied against the Social Security limit.
D) Self-employment income is first applied against the Social Security limit and then salary is applied against the Social Security limit.

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Question 63

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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 5 percent.

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.

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

Looking at the following partial calendar for a typical April (not 2020) , when will individual tax returns be due?

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)

Hestia (age 17) is claimed as a dependent by her parents, Rhea and Chronus. In 2020, Hestia received $1,060 of interest income from a corporate bond that she owns. In addition, she has earned income of $260. What is her taxable income for 2020?

Julien and Sarah are married, file a joint return, and have two children, Kaya and Christopher. Kaya just finished her third year at college and Christopher just finished his first year of graduate school (fifth year of college). Tuition and books for the past year were $1,800 for Kaya and $5,000 for Christopher. How much can Julien and Sarah claim in educational credits if their joint AGI was $128,000 for 2020?

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

Candace is claimed as a dependent on her parent's tax return. In 2020, Candace received $5,000 of interest income from corporate bonds she obtained several years ago. This is her only source of income. She is 15 years old at year-end. What is her gross tax liability? (Use Tax Rate Schedule, Standard deduction, Estates and Trusts.)

Katlyn reported $300 of net income from her sole proprietorship. She is not required to pay self-employment tax.

In 2020, Shawn's AGI is $170,000. He earned the income evenly throughout the year. He owed $29,890 in federal income tax and self-employment taxes of $2,590. Last year, he had a gross tax liability of $50,000. What is the minimum quarterly estimated tax payment Shawn must pay each quarter to avoid underpayment penalties for 2020?

Jerusha is married and she files a separate tax return in 2020. She claimed the standard deduction for regular tax purposes ($12,400). She had no other adjustments. Her regular taxable income was $67,800. What is Jerusha's AMTI?

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 $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 2020? (Use tax rate schedules.)

Which of the following statements concerning estimated tax payments and underpayment penalties for individuals is true?

Harmony reports a regular tax liability of $16,500 and tentative minimum tax of $18,650. Given just this information, what is her alternative minimum tax liability for the year?

An 80-year-old taxpayer with earned income and no dependent children could qualify for the earned income credit.

Harrison received a qualified dividend. Without knowing any additional facts, which of the following statements is true regarding the rate at which the dividend will be taxed to Harrison?

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