Question 1

Mr. and Mrs. Borem spent $1,435 for child care for their two dependent children, who are two and four years old. Mr. Borem's earned income was $55,870, Mrs. Borem had no earned income, and the AGI on their joint return was $66,210. Calculate their dependent care credit.

Accepted Answer

The answer of Mr. and Mrs. Borem spent $1,435 for...

Question 2

Mr. and Mrs. Stern reported $312,440 alternative minimum taxable income before any exemption on their 2016 Form 1040. Calculate their AMT exemption.

Accepted Answer

The answer of Mr. and Mrs. Stern reported $312,440 alternative...

Question 3

Which of the following situations result in a marriage penalty for federal income tax purposes?

Accepted Answer

The correct answer is D because when two single individuals with high incomes get married, their combined income may push them into a higher tax bracket, resulting in a marriage penalty. All other options either involve divorce, no taxable income, or the option to file separately, which do not typically result in a marriage penalty.

Question 4

Mr. and Mrs. Harvey's tax liability before credits was $1,675. Their income tax withholding was $1,050, and they are entitled to a $1,189 earned income credit. Which of the following statements is true?

Accepted Answer

The Harveys' tax liability before credits was $1,675, but they are entitled to a $1,189 earned income credit. Therefore, their final tax liability is $1,675 - $1,189 = $486.

Their income tax withholding was $1,050, which means they have already paid more than their final tax liability. Therefore, they are entitled to a refund.

The amount of the refund would be $1,050 (withholding) - $486 (final tax liability) = $564.

Therefore, the correct answer is C: The Harveys are entitled to a $564 tax refund.

Question 5

Mr. and Mrs. Luang reported $517,900 ordinary taxable income for regular tax purposes and had $39,100 positive AMT adjustments and preferences. Compute their tentative minimum tax.

Accepted Answer

To compute the tentative minimum tax, first calculate the Alternative Minimum Taxable Income (AMTI) by adding the positive AMT adjustments and preferences to the ordinary taxable income: $517,900 + $39,100 = $557,000. Then, apply the AMT tax rates. For 2023, the AMT exemption for married filing jointly is $126,500, and the AMT rate is 26% on the first $220,700 of AMTI above the exemption and 28% on the remainder. Calculate the AMT: ($557,000 - $126,500 = $430,500; $220,700 * 26% + ($430,500 - $220,700) * 28% = $152,234).

Question 6

Ms. Dorley's regular tax liability on her Form 1040 is $45,890. Which of the following statements is true?

Accepted Answer

The alternative minimum tax (AMT) is an additional tax calculated separately from regular tax liability. Therefore, Ms. Dorley's total tax liability would be the sum of her regular tax liability and her AMT. Option B is the only one that includes both regular tax liability and AMT, with a total tax liability of $52,270. Option A adds only the tentative minimum tax (which is just the starting point of the AMT calculation) to the regular tax liability. Option C and D are incorrect as they do not consider the AMT at all.

Question 7

Linda and Raj are engaged to be married. Linda's 2016 taxable income as a single individual would be $83,500. Raj's 2016 taxable income as a single individual would be $118,000. When they marry before the end of 2016, how much of a marriage penalty will they incur?

Accepted Answer

When married, their combined income would be taxed at a higher rate than if they were single. The marriage penalty is calculated by comparing the tax they would pay as singles versus as a married couple. The penalty is $683.

Question 8

Which of the following statements concerning the individual alternative minimum tax (AMT) is true?

Accepted Answer

The calculation of alternative minimum taxable income (AMTI) begins with taxable income for regular tax purposes and then adds back certain tax preference items. Option B is incorrect because a taxpayer can still be liable for AMT even if they have no tax preference items if their AMTI exceeds the AMT exemption amount. Option C is incorrect because an individual is not allowed the same exemption as a corporation in calculating the AMT base. Option D is incorrect because the individual AMT rate ranges from 26% to 28% depending on the amount of AMTI.

Question 9

Mr. and Mrs. King's regular tax liability on their joint return was $111,850. Which of the following statements is true?

Accepted Answer

The answer of Mr. and Mrs. King's regular tax liability...

Question 10

Mr. and Mrs. Arlette spent $5,900 for child care for their 12-year-old daughter. Mr. Arlette's earned income was $178,000, Mrs. Arlette's earned income was $33,100, and the AGI on their joint return was $225,200. Calculate their dependent care credit.

Accepted Answer

The dependent care credit for taxpayers is a percentage of their qualified expenses, which in this case is $5,900. However, the credit is limited to the lesser of the earned incomes of the two spouses. Mrs. Arlette's earned income is the lower at $33,100. For 2021, the maximum expense allowed for two or more qualifying persons is $8,000, but since they only spent $5,900, that is the amount considered. The applicable percentage for their AGI level ($225,200) would typically be 20%. Therefore, the credit is 20% of $5,900, which equals $1,180. However, given the specific details provided, it seems there might have been a misunderstanding in the calculation process. For a couple with an AGI of $225,200, the credit rate should indeed be lower due to phaseouts, but without specific phaseout details or changes in tax law provided in the question, the calculation based on the standard understanding of the dependent care credit would lead to a different conclusion than the options suggest. Given the options provided and typical tax law, the correct calculation seems to be missing, suggesting a need for clarification or an assumption that there's a specific tax law or limit being applied that isn't detailed in the question. Based on standard tax law understanding and the information given, the expected answer would be $1,180, but none of the options directly match a standard calculation, indicating a possible specific scenario or a mistake in the question setup or understanding of the tax law as it applies here.

Question 11

Mr. and Mrs. David file a joint tax return. They have $169,300 taxable income in 2016, $120,300 of which is ordinary income and $49,000 of which is taxed at a 15% preferential rate. Compute their tax savings from the preferential rate.

Accepted Answer

First, we need to calculate the tax on the $49,000 preferential rate income at a 15% tax rate:

$49,000 * 0.15 = $7,350

Next, we need to calculate the tax on the remaining $120,300 ordinary income using the tax brackets for married filing jointly:

$18,650 at 10% = $1,865
$57,500 at 15% = $8,625
$44,150 at 25% = $11,037.50

Total tax on ordinary income = $21,527.50

The total tax liability is then:

$7,350 + $21,527.50 = $28,877.50

If there were no preferential rate, the tax liability on the $49,000 would have been:

$49,000 * 0.25 = $12,250

The total tax liability without the preferential rate would be:

$12,250 + $21,527.50 = $33,777.50

The tax savings from the preferential rate is:

$33,777.50 - $28,877.50 = $4,900

Therefore, the answer is B, $5,422.

Question 12

Lennie and Margo spent $2,800 for child care for their 7-year-old son. Lennie's earned income was $41,000, Margo's earned income was $24,800, and the AGI on their joint return was $71,200. Calculate their dependent care credit.

Accepted Answer

The dependent care credit for taxpayers is a percentage of their qualified expenses, which in this case is $2,800. The maximum expense allowed for one qualifying person is $3,000. Since their AGI is $71,200, their credit percentage is 20%. Therefore, their credit is 20% of $2,800, which equals $560.

Question 13

Mr. and Mrs. Kain reported $80,000 AGI on their joint return. The couple has four dependent children: Beatrice, age 19; Bruce, age 16; Angie, age 11, and Arnold, age 8. Compute the Kains' child credit.

Accepted Answer

The child credit for 2021 is $3,000 per child under age 18. Since the Kains have two qualifying children under age 18 (Bruce and Angie), their child credit is $6,000.

Question 14

Mr. Marshall was employed by IMP Inc. until October, when he accepted a new position with Turine Inc. Mr. Marshall earned $129,000 compensation from IMP and $36,000 compensation from Turine. Which of the following statements is false?

Accepted Answer

The answer of Mr. Marshall was employed by IMP Inc....

Question 15

Mrs. Lincoln was employed by GGH Inc. until October, when he accepted a new position with Murdock Inc. Mrs. Lincoln earned $145,000 compensation from GGH and $36,000 compensation from Murdock. Which of the following statements is false?

Accepted Answer

A) True. The Social Security tax rate for 2019 is 6.2% of up to $132,900 of an employee's wages, so Murdock must withhold Social Security tax from Mrs. Lincoln's $36,000 compensation that exceeds this limit.

B) True. Similarly, the Medicare tax rate for 2019 is 1.45% of all wages, with no cap or limit. Therefore, Murdock must withhold Medicare tax from Mrs. Lincoln's $36,000 compensation.

C) False. While Mrs. Lincoln may be entitled to an income tax credit for excess Social Security and Medicare taxes actually paid during the year, she cannot claim such a credit for amounts that were withheld by her employers but not actually paid to the government. In other words, if her employers over withheld Social Security or Medicare taxes, Mrs. Lincoln should ask them to correct the error and either issue a refund or adjust future withholdings accordingly, but she cannot claim a credit for these overpayments on her tax return.

D) False. Only the employer who pays wages to an employee is responsible for paying the employer's share of payroll taxes, not the employee's previous employer or a subsequent employer. Therefore, GGH must pay its share of employer payroll taxes on the $145,000 compensation paid to Mrs. Lincoln during the year, while Murdock must pay its share on the $36,000 compensation it paid her.

Question 16

Ruth Anne, a single taxpayer, reported $152,600 alternative minimum taxable income before any exemption on her 2016 Form 1040. Calculate Ruth Anne's AMT exemption.

Accepted Answer

For tax year 2016, the AMT exemption amount for single taxpayers is $53,900, but it starts to phase out when their alternative minimum taxable income exceeds $119,700, and it's completely phased out at $335,000. Since Ruth Anne reported $152,600 in alternative minimum taxable income, her AMT exemption is not phased out, and she's entitled to the full exemption amount of $53,900. Thus, B is the correct answer.

Question 17

Mr. and Mrs. Daniels, ages 45, and 42, had the following income items in 2015: $$\begin{array} { l l } 
\text { Salaries and wages } & \$ 122,500 \
\text { Interest incorne } & 6,300 \
\text { Dividends eligible for } 15 \% \text { rate } & 4,000 \
\text { Capital gain eligible for } 15 \% / 4 a t e & 1,900
\end{array}$$ Mr. and Mrs. Daniels have no dependents and claim the standard deduction. Compute their income tax liability on a joint return.

Accepted Answer

The total income is $134,700. After the standard deduction for 2015 ($12,600) and personal exemptions ($8,000), the taxable income is $114,100. The tax on ordinary income is calculated using the tax brackets, and the qualified dividends and capital gains are taxed at 15%. The total tax liability is approximately $19,453.

Question 18

Mr. and Mrs. Reid reported $435,700 ordinary taxable income for regular tax purposes and had $58,200 positive AMT adjustments and preferences. Compute their tentative minimum tax.

Accepted Answer

To compute the tentative minimum tax, we need to follow these steps:

1. Calculate the alternative minimum taxable income (AMTI):
   AMTI = Regular taxable income + Positive AMT adjustments and preferences
        = $435,700 + $58,200
        = $493,900

2. Apply the AMT rate of 26% to AMTI up to $197,900 (for married filing jointly):
   AMT on first $197,900 = $197,900 x 26% = $51,514

3. Apply the AMT rate of 28% to AMTI over $197,900:
   AMT on remaining $296,000 = $296,000 x 28% = $82,880

4. Add the AMT from steps 2 and 3 to get the tentative minimum tax:
   Tentative minimum tax = $51,514 + $82,880
                        = $134,566

Therefore, the answer is B.

Question 19

Mr. and Mrs. Cox reported $115,900 AGI on their joint return. The couple has three dependent children under age 17. Compute their child credit.

Accepted Answer

The child tax credit for 2020 is $2,000 per qualifying child under age 17. However, the credit begins to phase out for taxpayers with AGI over $400,000 for married couples filing jointly ($200,000 for all other taxpayers). Since the Cox family has an AGI of $115,900, they are well below this threshold and can claim the full child tax credit for their three qualifying children, for a total credit of $2,700.

Question 20

Mr. and Mrs. Lansing, who file a joint tax return, have four dependent children under age 17. Which of the following statements is false?

Accepted Answer

The answer of Mr. and Mrs. Lansing, who file a...

Quiz 14: The Individual Tax Formula