Question 1

Mr.and Mrs.Bennett file a joint tax return.Determine if each of the following unmarried individuals is either a qualifying child or a qualifying relative for whom the couple can claim an exemption.
a.Son Alex,age 22,lives in his parents' home and works fulltime as a tax accountant.Alex is self-supporting except for the fact that he does not pay rent to his parents.
b.Daughter Samantha,age 20,is a full-time college student.Samantha lives in a dormitory during the school year,but her parents' home is her permanent residence and they provide 100% of her financial support.
c.Mr.Bennett's brother Max is 42 years old and mentally handicapped.Max lives in a privately operated group home,and Mr.and Mrs.Bennett provide 100% of his financial support.Max has no gross income.
d.Mrs.Bennett's mother,Vera,age 67,lives in a retirement community.Mr.and Mrs.Bennett provide about 75% of her financial support.Vera earned $5,000 this year as a part-time receptionist.

Accepted Answer

The answer of Mr.and Mrs.Bennett file a joint tax return.Determine...

Question 2

Which of the following statements concerning extensions of time to file an individual tax return is true?

Accepted Answer

An extension of time to file individual tax returns allows the taxpayer an additional six months to file the return. However, it does not extend the time to pay any taxes owed. The taxpayer must still estimate their tax liability and pay any taxes owed by the original due date of their tax return (usually April 15th). Failure to pay the taxes owed by the original due date may result in penalties and interest. B, C, and D are incorrect because they provide inaccurate information.

Question 3

Eileen,a single individual,had $125,000 taxable income.Compute her income tax assuming that:
a.Taxable income includes no capital gains.
b.Taxable income includes $14,000 capital gain eligible for the 15% preferential rate.

Accepted Answer

The answer of Eileen,a single individual,had $125,000 taxable income.Compute her...

Question 4

Which of the following statements concerning the exemption phaseout is true?

Accepted Answer

The exemption phaseout reduces the value of a taxpayer's exemptions as their income increases. It can potentially reduce their exemption amount to zero. The phaseout applies to all taxpayers, regardless of whether they use the standard deduction or itemize deductions. However, the phaseout is more significant for taxpayers with higher marginal tax rates. Therefore, statement A is false, and statement C is also false.

Question 5

Which of the following statements regarding tax payments is true?

Accepted Answer

Sole proprietors are responsible for paying both income tax and self-employment tax. They must make quarterly estimated payments of both taxes throughout the year to avoid penalties and interest charges. Option A is incorrect as sole proprietors are also required to make quarterly estimated payments of self-employment tax. Option B is incorrect as sole proprietors are also required to make quarterly estimated payments of income tax. Option D is incorrect as sole proprietors are required to pay both income tax and self-employment tax.

Question 6

Alice Grim,a single taxpayer,has $219,000 taxable income,which includes a $20,000 capital gain taxed at 15%.Her alternative minimum taxable income in excess of her exemption amount is $237,400.Compute Alice's regular tax,AMT,and total tax.

Accepted Answer

The answer of Alice Grim,a single taxpayer,has $219,000 taxable income,which...

Question 7

Ms.Kilo's regular income tax before credits on her Form 1040 is $45,890,and she has a $5,700 minimum tax credit from a previous year.Which of the following statements is true?

Accepted Answer

The answer of Ms.Kilo's regular income tax before credits on...

Question 8

Determine Mr.Smith's 2017 filing status in each of the following independent cases.
a.Mr.Smith and Mrs.Smith were legally divorced on December 1.Mr.Smith has not remarried and has no dependent children.
b.Mr.Smith and the first Mrs.Smith were legally divorced on February 10.Mr.Smith remarried the second Mrs.Smith on December 5.He has no dependent children.
c.Mrs.Smith dies on June 22.Mr.Smith has not remarried and has no dependent children.
d.Mrs.Smith died on November 1,2015.Mr.Smith has not remarried and maintains a home for one dependent child.
e.Mrs.Smith died on April 3,2016.Mr.Smith has not remarried and has no dependent children.
f.Mr.and Mrs.Smith were legally divorced on September 10,2014.Mr.Smith has not remarried and maintains a home for his two dependent children.

Accepted Answer

The answer of Determine Mr.Smith's 2017 filing status in each...

Question 9

Which of the following statements concerning the overall limitation on itemized deductions is true?

Accepted Answer

The answer of Which of the following statements concerning the...

Question 10

Last year,Mr.Corbett's AGI was $141,000,and his total tax liability was $33,650.This year,his total tax liability is $35,290.Compute the minimum amount of current year tax that Mr.Corbett had to prepay (withholding and estimated payments)to avoid an underpayment penalty.

Accepted Answer

The answer of Last year,Mr.Corbett's AGI was $141,000,and his total...

Question 11

Mr.and Mrs.Reece couldn't complete their 2017 Form 1040 before April 15,2018.They estimate that they will have a $700 balance of tax due with the return.Which of the following statement is true?

Accepted Answer

The Reeces can file an extension request by April 15 to extend the filing date for six months without penalty. However, they must pay the estimated balance of tax due with the extension request. This will avoid the failure-to-file penalty, but interest will accrue on the unpaid tax balance from April 15 until the payment is made.

Question 12

Which of the following statements concerning extensions of time to file an individual tax return is false?

Accepted Answer

An extension request must be filed before the original due date of the tax return, which for individuals is typically April 15.

Question 13

Last year,Mr.Tyker's AGI was $182,800,and his total tax liability was $51,650.This year,his total tax liability is $65,440.Compute the minimum amount of current year tax that Mr.Tyker had to prepay (withholding and estimated payments)to avoid an underpayment penalty.

Accepted Answer

To avoid an underpayment penalty, Mr. Tyker must satisfy either of the following requirements:
1) Pay 100% of the previous year's tax liability ($51,650 in this case), or
2) Pay 90% of the current year's tax liability ($65,440 in this case).
Since we want to find the minimum amount of current year tax that Mr. Tyker had to prepay to avoid a penalty, we'll choose the option that gives the lower amount. Therefore, Mr. Tyker had to prepay at least 90% of $65,440, which is $58,896. However, we also know that his AGI was higher this year than last year, so we'll use the safe harbor rule and pay 110% of last year's tax liability ($51,650) instead. 110% of $51,650 is $56,815, which is less than the 90% of current year's tax liability option. Therefore, Mr. Tyker had to prepay at least $56,815 to avoid an underpayment penalty. The correct answer is C.

Quiz 14: The Individual Tax Formula