Question 1

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.

Accepted Answer

The answer of In 2014, Athena reported $37,500 of taxable...

Question 2

Which of the following statements regarding late filing penalties is true?

Accepted Answer

Taxpayers who owe no tax as of the due date of their tax returns are not subject to late filing penalties even if they file late. The penalty for non fraudulent failure to file is 5% of the unpaid tax amount per month, while the penalty for fraudulent failure to file is 15% of the unpaid tax amount per month. The penalty will stop once the amount owed reaches 25% of the unpaid tax amount. Therefore, option A and B are incorrect.

Question 3

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 $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 2014?

Accepted Answer

The answer of Maria and Tony are married. They are...

Question 4

Which of the following taxpayers (all age 40) are required to file a return? $$\begin{array} { | l | l | r | c | } 
\hline \text { Taxpayer } & \text { Filing Status } & \begin{array} { c } 
\text { Number } \
\text { of exemptions }
\end{array} & \begin{array} { c } 
\text { Gross } \
\text { Income }
\end{array} \
\hline \text { Jenny and Jim } & \begin{array} { l } 
\text { Married Filing } \
\text { Jointly }
\end{array} & 2 & \$ 21,000 \
\hline \text { Allen } & \text { Single } & 1 & \$ 9,200 \
\hline \text { Timmy } & \text { Head of Household } & 2 & \$ 10,800 \
\hline
\end{array}$$

Accepted Answer

The filing threshold for married filing jointly for those under 65 is $25,100 in 2021. Jenny and Jim's income is below this threshold, so they are not required to file. Allen's income is below the $12,550 threshold for single filers, and Timmy's income is below the $18,800 threshold for head of household. Therefore, none of them are required to file based on income alone.

Question 5

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?

Accepted Answer

The answer of Paul and Melissa plan on filing jointly...

Question 6

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?

Accepted Answer

The answer of Maria and Tony are married. They are...

Question 7

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

Accepted Answer

The answer of Jackson earned a salary of $254,000 in...

Question 8

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?

Accepted Answer

The answer of Jocelyn, a single taxpayer, had $742,000 of...

Question 9

Which of the following is not true of the extension to file an individual tax return?

Accepted Answer

Extensions to file an individual tax return extend the due date for filing the return, not the due date for any tax payments due. Tax payments are still due by the original due date of the return, even if an extension to file is granted.

Question 10

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

Accepted Answer

Taxpayers who underpay their estimated taxes are subject to the underpayment penalty rate, which is calculated as the federal short-term interest rate plus three percentage points. This penalty is meant to encourage taxpayers to pay their taxes on time and avoid accruing interest on their outstanding balances. The federal long-term interest rate plus six percentage points is used to calculate the interest rate on large overpayments of tax, not the underpayment penalty rate. The correct answer is not D, as the government does pay interest on overpayments of tax.

Question 11

Apollo is single and his AMT base is $100,250. This amount includes $500 of qualified dividends (the dividends were taxed at 15% in determining the regular tax liability). What is Apollo's tentative minimum tax?

Accepted Answer

The answer of Apollo is single and his AMT base...

Question 12

Henry and Janice are married and file jointly. They have an AGI (and modified AGI) of $290,000, which includes $90,000 of salary, $170,000 of active business income, $10,000 of interest income, $15,000 of dividends, and $5,000 of long-term capital gains. What is Henry and Janice's Net Investment Income tax liability this year, rounded to the nearest whole dollar amount?

Accepted Answer

The answer of Henry and Janice are married and file...

Question 13

Selene made $54,300 in 2014 working at the local burger joint, Moon Café. How much should her employer withhold from her paycheck for FICA taxes if the calculation is made correctly?

Accepted Answer

The answer of Selene made $54,300 in 2014 working at...

Question 14

Candace is claimed as a dependent on her parent's tax return. Her parents' ordinary income marginal tax rate is 33%. In 2014, Candace received $5,000 of interest income from corporate bonds she obtained several years ago. This is her only source of income. She is 15 years old at year end. What is her gross tax liability?

Accepted Answer

The answer of Candace is claimed as a dependent on...

Question 15

Costa is a single taxpayer. His regular tax liability was $38,000. For 2014, he reported $190,000 of alternative minimum taxable income. What is his alternative minimum tax? [Use 2014 AMT Exemption amount]

Accepted Answer

The answer of Costa is a single taxpayer. His regular...

Question 16

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?

Accepted Answer

The answer of Max is a 14-year-old dependent of his...

Question 17

Jerusha is married and she files a separate tax return in 2014. She claims two exemptions (2 × 3,950 = $7,900). She claimed the standard deduction for regular tax purposes ($6,200). She had no other adjustments. Her regular taxable income was $67,800. What is Jerusha's AMTI?

Accepted Answer

The answer of Jerusha is married and she files a...

Question 18

Which of the following statements regarding late filing penalties and/or late payment penalties is true?

Accepted Answer

If a taxpayer has not paid the full tax liability by the original due date of the return and the taxpayer has not filed a tax return by the due date of the return, the maximum late filing and late payment penalty will be no greater than the late filing penalty by itself. This means that the late payment penalty will not be added on top of the late filing penalty if the tax return is not filed by the due date. Option A is incorrect because an extension of time to file the tax return doesn't protect the taxpayer from late payment penalties, interest may still be applied on unpaid taxes. Option B is incorrect because late payment penalties are generally less than late filing penalties. Option D is incorrect because there is at least one true statement regarding late filing penalties and/or late payment penalties.

Question 19

Pyrrha, a 12-year-old dependent of Epimetheus and Pandora, received $2,100 of interest income in 2014. Her parents' marginal tax rate is 35%. What is Pyrrha's gross tax liability for the year?

Accepted Answer

The answer of Pyrrha, a 12-year-old dependent of Epimetheus and...

Question 20

Hera wants to reduce her income tax liability by shifting some of her income to her 10-year-old daughter (a dependent), Athena. Last year, Hera gifted corporate bonds to Athena. This year, Athena received $1,500 in interest income from the bonds. What amount of tax will Athena pay on the interest income?

Accepted Answer

The answer of Hera wants to reduce her income tax...

Quiz 7: Individual Income Tax Computation and Tax Credits