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Exam 7: Individual Income Tax Computation and Tax Credits

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Question 41

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During all of 2014, 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 2014. Neither is blind, and both are under age 65. They reported the following tax-related information for the year $\begin{array}{c}\begin{array}{l}\text{Salary income}\\\text{Prize from local radio station}\\\\\text{Medical expenses (no health insurance)}\\\text{Real estate taxes}\\\text{Alimony paid by Mr. Clay}\\\text{State income taxes withheld in 2014}\\\text{State income taxes paid with 2014 tax return (return was filed}\\\quad\text{in April, 2015)}\\\text{Federal income tax withholding}\\\text{Qualified home mortgage interest}\\\text{Charitable contributions}\\\end{array}\begin{array}{lll}&&\end{array}\begin{array}{r}\$ 125,000 \\1,500 \\\\4,000 \\4,200 \\12,000 \\1,800 \\\\1,500 \\7,500 \\11,000 \\4,000\\\end{array}\end{array}$ A. What is the Clays' taxes payable or (refund due) (ignore the alternative minimum tax)? B. What is the Clays' tentative minimum tax and alternative minimum tax?

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A. Tax refund is $1,687.
B. A ...

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Question 42

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Assuming the kiddie tax applies, what amount of a child's income is subject to the kiddie tax?

A) All of it
B) All of the unearned income
C) The net unearned income
D) Taxable income less the standard deduction

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

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Question 43

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Parents may claim a child and dependent care credit for expenses incurred in providing for their dependents while the parents work as long as the children are over age 14 and under age 20 at year end.

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

All capital gains are taxed at preferential rates.

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?

Which of the following is not one of the general tax credit categories?

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

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?

Maria and Tony are married. They are preparing to file their 2014 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 2014?

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

Paul and Melissa plan on filing jointly in 2014. For the year, the couple reported taxable income of $130,000. What is their gross tax liability?

Tax rate schedules are provided for use by (relatively) higher income taxpayers while the tax tables are provided for use by (relatively) lower income taxpayers.

Max is a 14-year-old dependent of his parents. During 2014, Max earned $1,800 working part time jobs and he received $1,500 of interest income from corporate bonds that were given to him last year. What is Max's 2014 taxable income?

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 $120,000 for 2014?

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

Self-employed taxpayers are allowed to deduct the full amount of the self-employment taxes they pay.

Which of the following represents the correct order in which credits are applied to gross tax liability (from first to last) ?

Wolfina's twins, Romulus and Remus, finished their first year of school at an accredited university in 2014. She paid $10,000 in qualified educational expenses for Romulus and $2,000 of qualifying expenses for Remus. Wolfina is a head of household with an AGI of $85,000. What amount of American opportunity credit may she claim?

Jocelyn, a single taxpayer, had $742,000 of taxable income in 2014. All of the income is ordinary. What is her tax liability for the year?