Ch 8 - SmartBook Flashcards
Each separate range of income subject to a different tax rate is referred to as a(n)
tax bracket
When a married couple’s tax liability is smaller using the married filing jointly status than it would have been if both individuals were unmarried and filed as single, the difference in the tax liability is called a(n)
marriage benefit
Which of the following types of income may be taxed at rates higher than the tax rate schedule would dictate?
Multiple choice question.
Qualified dividend income
Unearned income when the taxpayer is a dependent child
Partnership income when the taxpayer is a limited partner
Long-term capital gain income
Unearned income when the taxpayer is a dependent child
Which of the following tax provisions was implemented to insure that the taxpayer pays some level of income tax, despite the disproportionate use of tax preference items to reduce regular taxable income?
Multiple choice question.
Kiddie tax
Earned income credit
Tax on net investment income
Self-employment tax
Alternative minimum tax
Alternative minimum tax
Investment interest expense that was NOT deductible for regular taxable income will be deductible for AMTI to the extent it was attributable to interest income that was ___________ ___________ for regular tax purposes, but is ___________ for AMTI.
tax exempt;
taxable
True or false: The term tax bracket refers to the average tax rate that is applied to an individual’s taxable income.
True false question.
True
False
False
Each separate range of income subject to a different tax rate is a tax bracket.
Alex and Alecia used the married filing jointly filing status when they prepared their tax return. During the current year, their joint tax liability totaled $9,300. If they were not married and had both filed as single, Alex would have had a $3,900 tax liability, and Alecia would have had a $5,000 tax liability. What is the term used for the $400 difference in their tax liability?
Joint benefit
Joint penalty
Marriage benefit
Marriage penalty
Marriage penalty
Which of the following taxpayers can use the tax rate schedule to calculate the tax on all of his or her taxable income without having to perform additional calculations to determine the tax on varying types of income?
Multiple choice question.
Rick earned wages from his employer and has long term capital gain income.
Sheri is 13 and a dependent of her parents. She has unearned income of $3,800.
Yining has a profitable business and received qualified dividends.
Harold received income from a partnership where he works full-time and interest from corporate bonds.
Harold received income from a partnership where he works full-time and interest from corporate bonds.
The ___________ ___________ tax was implemented to make sure that taxpayers who were generating income pay some income tax, rather than disproportionately benefiting from tax advantaged items.
alternative minimum
Choose the types of income that qualify as net investment income for the purposes of assessing the Net Investment Income tax. (Check all that apply.)
Multiple select question.
A.) Distributions from qualified retirement plans
B.) Excluded gain on sale of a personal residence
C.) Self-employment income
D.) Income from a trade or business that is a passive activity
E.) Tax-exempt interest income
F.) Interest income
G.) Dividend income
D.) Income from a trade or business that is a passive activity
F.) Interest income
G.) Dividend income
Which of the following statements BEST describes the treatment of medical expenses for alternative minimum taxable income?
Multiple choice question.
Medical expenses are deductible for AMTI, subject to a 7.5% of AGI floor for all taxpayers regardless of age.
Medical expenses are NOT deductible for AMTI and must be subtracted from regular taxable income to calculate AMTI.
Medical expenses are NOT deductible for AMTI and must be added back to regular taxable income to calculate AMTI.
Medical expenses are deductible for AMTI, subject to a 7.5% of AGI floor for all taxpayers regardless of age.
Employees pay ___________ taxes on their salary, wages, and other compensation at a current rate of 1.45% (2.35% for higher income taxpayers).
Medicare
Which one of the following types of income is NOT part of net investment income for purposes of calculating the Net Investment Income tax?
Multiple choice question.
Veteran’s benefits
Passive activity income
Interest income
Annuity income
Veteran’s benefits
A tax ____________ reduces a taxpayer’s tax liability dollar for dollar. A tax ____________ reduces taxable income, resulting in a tax savings that is dependent on the taxpayer’s marginal tax bracket.
credit;
deduction
Employees pay __________ __________ taxes on their salary, wages, and other compensation at a current rate of 6.2%.
social security
Which of the following statements regarding the child tax credit for the 2021 tax year are true? (Check all that apply.)
Multiple select question.
A.) The tax credit is $500 for each qualifying child.
B.) The individual claimed must be under age 18 at year-end.
C.) To get the maximum credit, the individual claimed must be a qualifying child.
D.) The individual claimed may or may not be a dependent.
B.) The individual claimed must be under age 18 at year-end.
C.) To get the maximum credit, the individual claimed must be a qualifying child.
Which one of the following credits is a tax subsidy designed to help taxpayers provide care for their dependents, so that they can work or look for work?
Multiple choice question.
Earned income credit
Child tax credit
Caregiving assistance credit
Child and dependent care credit
Child and dependent care credit
Which of the following types of income may be taxed at rates lower than the tax rate schedule would dictate? (Check all that apply.)
Multiple select question.
Unearned income when the taxpayer is a dependent child
Rental income from property the taxpayer owns.
Long-term capital gain income
Qualified dividend income
Long-term capital gain income
Qualified dividend income
Rhonda is currently in the 12 percent tax bracket. She reports a $400 tax deduction. How will this deduction affect her tax liability?
Multiple choice question.
Her tax liability will increase by $48.
Her tax liability will decrease by $400.
Her tax liability will increase by $400.
Her tax liability will decrease by $48.
Her tax liability will decrease by $48.
A deduction reduces the taxable income, so the tax liability decreases by the marginal tax rate.
What is the maximum amount of the 2021 child tax credit for a child under age six?
Multiple choice question.
A maximum of $2,000 for each qualifying child
A maximum of $1,600 for each qualifying child
A maximum of $3,600 for each qualifying child
A maximum of $3,000 per tax return
A maximum of $3,600 for each qualifying child
The child and dependent care credit is available for expenses paid to provide care for which of the following individuals? (Check all that apply.)
Multiple select question.
A dependent under age 13
A dependent who is a qualifying child regardless of age
A dependent, elderly parent who can take care of herself, but is low-income and does not provide over half of her own support.
A spouse who is physically or mentally incapable of caring for himself
A dependent who is physically or mentally incapable of caring for himself
A dependent under age 13
A spouse who is physically or mentally incapable of caring for himself
A dependent who is physically or mentally incapable of caring for himself
Which of the following individuals is eligible to receive (or qualify their parents to receive) the American Opportunity Credit?
Multiple choice question.
Kourtney is a graduate student at NYU, but is still a dependent of her parents.
Kim is single, works full time, and goes to college half time for her second year at LSU. She provides over half of her own support.
Kris is a fifth-year senior at IU. She is 23, a full time student, and a dependent of her parents.
Khloe is married and in her third year as a full time student at UCLA. She uses the married filing separately filing status on her tax return.
Kim is single, works full time, and goes to college half time for her second year at LSU. She provides over half of her own support.
Shonda is currently in the 24 percent tax bracket. She reports a $400 tax credit. How will this credit affect her tax liability?
Multiple choice question.
Her tax liability will increase by $400.
Her tax liability will decrease by $96.
Her tax liability will decrease by $400.
Her tax liability will increase by $96.
Her tax liability will decrease by $400.
A credit reduces the tax liability dollar for dollar.
In order to qualify for the maximum child tax credit in 2021, the child must meet the requirements to be a(n) ___________ ___________ and be under age ___________ at the end of the year.
qualifying child;
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