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Exam 7: Individual Income Tax Computation and Tax Credits

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Question 31

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Which of the following statements regarding FICA taxes is true?

A) Low income employees are not required to pay FICA taxes.
B) An employee who has two different employers during the year may be entitled to a tax credit for overpaid FICA taxes.
C) The maximum amount of Medicare taxes an employee is required to pay is capped each year but the maximum amount of Social Security taxes is not.
D) The wage base limit for Social Security taxes depends on the taxpayer's filing status.

E) B) and C)
F) A) and B)

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Question 32

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

A) Nonrefundable personal
B) Refundable personal
C) Business
D) Refundable business

E) All of the above
F) C) and D)

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Question 33

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Individuals may file for and receive a six-month extension of time to file their tax return and pay their taxes without penalty.

Which of the following suggests that a working taxpayer is an independent contractor rather than an employee?

In 2014, Athena reported $37,500 of taxable income. Of this, $32,500 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 2014 as a single taxpayer.

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.

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

Generally, income from an active trade or business is subject to the 3.8% Net Investment Income tax.

The lifetime learning credit can be used toward the cost of any course of instruction to acquire or improve a taxpayer's job skills, no matter the age of the taxpayer.

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?

During 2014, Jasmine (age 12) received $2,400 from a corporate bond. She also received $600 from a savings account established for her by her parents. Jasmine lives with her parents and she is their dependent. Assuming her parents' marginal tax rate is 28%, what is Jasmine's gross tax liability?

In 2014, Shawn's AGI is $170,000. He earned the income evenly throughout the year. He owed $24,900 in federal income tax plus alternative minimum tax of $263, 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 2014?

Jackson earned a salary of $254,000 in 2014. What amount of FICA taxes should Jackson's employer withhold from his paycheck?

Which of the following statements concerning differences between employees and independent contractors is most accurate?

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 $\begin{array}{c}\begin{array}{lll}\text{Salary income}\\\text{Prize from local radio station}\\\\\text{Medical expenses (no health insurance)}\\\text{Real estate taxes}\\\text{Alimony paid by Mr. Clay}\\\text{State income taxes withheld in 2014}\\\text{State income taxes paid with 2014 tax (return was filed}\\ \quad\text{in April, 2015)}\\\text{Federal income tax withholding}\\\text{Qualified home mortgage interest}\\\text{Charitable contributions}\\\end{array}\begin{array}{lll}&&\end{array}\begin{array}{lll}\$ 125,000 \\1,500\\\\4,000\\4,200\\12,000\\1,800\\\\1,500\\7,500\\11,000\\4,000\\\end{array}\end{array}$ 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?

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

In 2014, Maia (who files as a head of household) reported regular taxable income of $115,000. She itemized her deductions, deducting $8,000 in charitable contributions and $3,000 in state income taxes. She claimed exemptions for herself and her son, Hermes, ($3,900 each) . What is Maia's alternative minimum taxable income?

Tamra and Jacob are married and they file a joint tax return. Tamra received nearly five times the salary that Jacob received. Which of the following statements is true?

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?