Question 1

Asteria earned a $25,500 salary as an employee in 2013.How much should her employer have withheld from her paycheck for FICA taxes (rounded to the nearest whole dollar amount) ?

Accepted Answer

FICA taxes are 7.65% of gross income. $25,500 x 0.0765 = $1,951.

Question 2

The alternative minimum tax base is typically ______ the regular income tax base.

Accepted Answer

The alternative minimum tax (AMT) base is typically larger than the regular income tax base because it adds back in certain tax preference items and adjustments that are excluded from the regular tax calculation.

Question 3

Hestia (age 17) is claimed as a dependent by her parents,Rhea and Chronus.In 2013,Hestia received $1,000 of interest income from a corporate bond that she owns.In addition,she has earned income of $200.What is her taxable income for 2013?

Accepted Answer

The answer of Hestia (age 17) is claimed as a...

Question 4

The computation of the alternative minimum tax base begins with regular taxable income.Which of the following is not part of the formula for computing the alternative minimum tax base?

Accepted Answer

Personal exemptions are not subtracted in the computation of the alternative minimum tax base, they are added back. This is because the AMT does not allow deductions for personal exemptions.

Question 5

Which of the following statements accurately describes the alternative minimum tax rate(s) ?

Accepted Answer

The AMT rates represent a progressive tax rate structure with rates of 26% and 28% (higher rate for higher incomes). Option A is incorrect because the top AMT marginal rate is not necessarily higher than the top regular tax marginal rate. Option C is incorrect because the AMT rate is not the same rate for all taxpayers. Option D is also incorrect as explained above.

Question 6

Which of the following is not typical of taxpayers who are most likely affected by the AMT?

Accepted Answer

The answer of Which of the following is not typical...

Question 7

Which of the following statements regarding the AMT exemption amounts is not true?

Accepted Answer

The AMT exemption is not a choice between claiming the exemption or itemizing deductions; it is automatically applied based on income and filing status.

Question 8

Which of the following items is not added back to regular taxable income in computing alternative minimum taxable income?

Accepted Answer

Home mortgage interest expense is deductible for AMT purposes and is not added back to regular taxable income.

Question 9

Persephone has a regular tax liability of $12,475 and a tentative minimum tax of $11,500.Given just this information,what is her alternative minimum tax liability for the year?

Accepted Answer

The alternative minimum tax (AMT) is calculated as the difference between the tentative minimum tax and the regular tax liability, but only when the tentative minimum tax is greater than the regular tax liability. Since Persephone's regular tax liability ($12,475) is higher than her tentative minimum tax ($11,500), she does not owe any AMT, making the correct answer $0.

Question 10

Montague (age 15) is claimed as a dependent by his parents Matt and Mary.In 2013,Montague received $5,000 of qualified dividends and he received $800 from a part time job.What is his taxable income for 2013?

Accepted Answer

Based on the information given, Montague's taxable income would be calculated as follows:
Qualified dividends: $5,000
Part-time job income: $800
Total income: $5,800
However, since Montague is claimed as a dependent by his parents, he can only claim the standard deduction for a dependent ($1,000 in 2013). Therefore, his taxable income would be $5,800 - $1,000 = $4,800. Option C is the closest choice to this amount.

Question 11

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

Accepted Answer

The kiddie tax only applies to a child's unearned income (such as interest, dividends, and capital gains) over a certain threshold ($2,100 for 2020). The amount subject to the kiddie tax is the child's net unearned income (total unearned income minus any deductions related to earning that income).

Question 12

Which of the following is not a barrier to income shifting among family members?

Accepted Answer

Options A (assignment of income doctrine) and B (net unearned income for children taxed at parents' marginal tax rates) are both barriers to income shifting among family members as they limit the ability of higher earning members to shift income to lower earning family members in order to reduce taxes. However, option C (elimination of preferential tax rates for dependents) does not directly relate to income shifting among family members and, therefore, is not a barrier to income shifting.

Question 13

The Olympians have three children.The kiddie tax applies to unearned income received by which of the following children?

Accepted Answer

Because Poseidon is under the age of 24, a full-time student, and does not support himself, his income is subject to the kiddie tax. The other options do not meet all three criteria, so their unearned income would not be subject to the kiddie tax.

Question 14

During 2013,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?

Accepted Answer

Jasmine's unearned income is $3,000 ($2,400 from the bond + $600 from the savings account). The first $1,000 is tax-free, the next $1,000 is taxed at her rate (10%), and the remaining $1,000 is taxed at her parents' rate (28%). So, her tax liability is $0 + $100 + $280 = $380.

Question 15

In 2013,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?

Accepted Answer

To calculate alternative minimum taxable income, we need to start with regular taxable income and make adjustments/additions for items that are taxed differently under the alternative minimum tax rules.

Starting with Maia's regular taxable income:

$115,000

Additions: 
- State income tax deduction: $3,000 
- Personal exemptions (2 x $3,900): $7,800

Subtract the AMT exemption amount for her filing status: $51,900

$115,000 + $3,000 + $7,800 - $51,900 = $125,800

Therefore, the alternative minimum taxable income is $125,800. The correct answer is D.

Question 16

Hester (age 17) is claimed as a dependent by his parents,Charlton and Abigail.In 2013,Hester received $10,000 of qualified dividends and he received $6,000 from a part time job.What is his taxable income for 2013?

Accepted Answer

Hester's taxable income is calculated by subtracting the standard deduction for a dependent from his total income. In 2013, the standard deduction for a dependent with earned income is the greater of $1,000 or earned income plus $350, up to the standard deduction limit for a single filer ($6,100 in 2013). Hester's earned income is $6,000, so his standard deduction is $6,350. His total income is $16,000 ($10,000 dividends + $6,000 job), so his taxable income is $16,000 - $6,350 = $9,650.

Question 17

Which of the following could explain why large number of taxpayers are subject to (or could become subject to) AMT?

Accepted Answer

The answer of Which of the following could explain why...

Question 18

Harmony reports a regular tax liability of $15,000 and tentative minimum tax of $17,000.Given just this information,what is her alternative minimum tax liability for the year?

Accepted Answer

To calculate the alternative minimum tax liability, we need to compare the tentative minimum tax to the regular tax liability. Since the tentative minimum tax of $17,000 is greater than the regular tax liability of $15,000, there is an alternative minimum tax liability of the difference, which is $2,000. Therefore, the correct answer is B.

Question 19

During 2013,Montoya (age 15) received $2,200 from a corporate bond.He also received $600 from a savings account established for him by his parents.Montoya lives with his parents and he is their dependent.What is Montoya's taxable income?

Accepted Answer

Montoya's taxable income would be the $2,200 he received from the corporate bond, as interest income is taxable. The $600 he received from the savings account is considered a gift and does not count as taxable income. Therefore, his taxable income is $2,200. As a dependent, he may still be claimed on his parents' tax return and may not have to file his own tax return.

Question 20

Allen Green is a single taxpayer with an AGI (and modified AGI) of $210,000,which includes $170,000 of salary,$25,000 of interest income,$10,000 of dividends,and $5,000 of long-term capital gains.What is Allen's Medicare contribution tax liability this year,rounded to the nearest whole dollar amount?

Accepted Answer

The answer of Allen Green is a single taxpayer with...

Quiz 7: Individual Income Tax Computation and Tax Credits