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Exam 8: Individual Income Tax Computation and Tax Credits

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Question 1

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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.)

A) $46,861
B) $48,722
C) $51,547
D) $53,594

E) None of the above
F) A) and B)

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Question 2

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Which of the following tax credits is fully refundable?

A) American opportunity credit
B) Dependent care credit
C) Earned income credit
D) None of the choices are correct

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

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Question 3

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Due to the alternative minimum tax rate structure, a taxpayer with a large amount of long-term capital gains may be susceptible to the alternative minimum tax.

In 2019, 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.What is Maia's alternative minimum taxable income?

Costa is a single taxpayer.His regular tax liability was $38,000.For 2019, he reported $190,000 of alternative minimum taxable income.What is his alternative minimum tax?

When applying credits against a taxpayer's gross tax liability, nonrefundable personal credits are applied first, then business credits, and finally refundable personal credits.

Employees are allowed to deduct a portion of the FICA taxes they pay.

The AMT exemption amount is phased out for high-income taxpayers.

John and Sally pay Janet (Sally's older sister)to watch John and Sally's child Dexter during the day.Janet cares for Dexter in her home.John and Sally may claim a child and dependent care credit based on the amount they pay Janet to care for Dexter.

Jackson earned a salary of $254,000 in 2019.What amount of FICA taxes should Jackson's employer withhold from his paycheck?

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?

Regular taxable income is the starting point for determining the alternative minimum tax.

Max is a 14-year-old dependent of his parents.During 2019, 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 2019 taxable income?

Harmony is single and was self-employed for the first half of 2019, earning $18,000 of Schedule C (business)net income.During the second half of the year, she began working as an employee and earned $38,000 in salary.What amount of self-employment taxes is Harmony required to pay?

Baker is single and earned $225,000 of salary as an employee in 2019.How much should his employer have withheld from his paycheck for FICA taxes? (Round your answer to the nearest whole dollar amount.)

In 2019, Shawn's AGI is $170,000.He earned the income evenly throughout the year.He owed $29,890 in federal income tax 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 2019?

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

Tax credits reduce a taxpayer's taxable income dollar for dollar.

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

Business credits are generally refundable credits.