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Exam 8: Individual Income Tax Computation and Tax Credits

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Question 1

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Costa is a single taxpayer. His regular tax liability was $38,000. For 2018, he reported $190,000 of alternative minimum taxable income. What is his alternative minimum tax?

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$0 Answer computed as follows: Costa's AMT base is $190,000 minus $70,300 exemption = $119,700. Costa's tentative minimum tax is $31,122 ($119,700 x 26%). Consequently, his alternative minimum tax is $0 ($31,122 tentative minimum tax minus $38,000 regular tax liability, limited to $0).

Question 2

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Generally, income from an active trade or business is subject to the 3.8% net investment income tax.

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B) False

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Question 3

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Which of the following statements regarding the self-employment tax is most accurate?

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

What is the underpayment penalty rate that taxpayers pay when they underpay their estimated taxes?

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

Harmony is single and was self-employed for the first half of 2018, 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?

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 $126,000 for 2018?

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

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

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

Which of the following is not a taxpayer filing status for purposes of determining the appropriate tax rate schedule?

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) ?

Rhianna and Jay are married filing jointly in 2018. They have six children under age 17 for whom they may claim the child tax credit. Their AGI was $419,400. What amount of child tax credit may they claim on their 2018 tax return?

Maria and Tony are married. They are preparing to file their 2018 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 2018? (Use Tax Rate Schedule.)

The taxable income levels in the married filing jointly tax rate schedule are ________ those in the married filing separately schedule.

How could an individual obtain a business tax credit?

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

Baker is single and earned $225,000 of salary as an employee in 2018. How much should his employer have withheld from his paycheck for FICA taxes (rounded to the nearest whole dollar amount) ?

The alternative minimum tax base is typically ________ the regular income tax base.