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;
6
The __________ and __________ __________ credit helps taxpayers pay the cost of providing care for dependents, so that taxpayers can work.
child and dependent care
Bruce is a part-time student (more than half time) enrolled at a qualified postsecondary educational institution. He files as a single taxpayer and cannot be claimed as a dependent on any other tax return. He paid $3,000 in qualified education expenses during the year. What is the amount of his American Opportunity Credit?
Multiple choice question.
$750
$2,500
$2,250
$3,000
$2,250
He is limited to 100 percent of the first $2,000 and 25 percent of the next $2,000.
Allie’s only source of income for the year is wages from a part-time job of $9,000. She is not married and has one dependent child. Allie has no tax liability and she had no income tax withheld by her employer. What is the amount of Allie’s earned income credit?
Multiple choice question.
$529
$0
$3,060
$3,526
$3,060
She will receive a refund of $3,060 ($9,000 x .34) even though she has no tax liability and no withholdings.
How are business tax credits, except for the foreign tax credit, handled when they exceed the taxpayer’s gross tax for the year?
Multiple choice question.
The credits are carried back one year and forward 20 years.
The credits are carried forward indefinitely.
The credits are refundable, so the taxpayer is entitled to a refund of the excess credit.
The credits are carried forward for 5 years.
The credits are carried back one year and forward 20 years.
True or false: Personal nonrefundable credits should be applied to a taxpayer’s tax liability before other types of credits. After personal nonrefundable credits, any business credits should be used followed by all personal refundable credits.
True false question.
True
False
True
The correct order is as follows: personal nonrefundable credits, business credits, and finally, personal refundable credits.
The ___________ ___________ Tax Credit is available for students enrolled in a qualified postsecondary educational institution during the first four years of their education.
American Opportunity
True or false: There is no underpayment penalty assessed if the taxpayer chooses to pay nothing throughout the year, but sends in just enough of an estimated payment at year-end to meet the safe harbor rules.
True false question.
True
False
False
The underpayment is calculated and assessed for each quarter the taxpayer is underpaid.
Steve’s only source of income for the year is a salary of $24,000. He is not married and has one dependent child who is eligible for the child tax credit. Steve’s tax liability is $570 before any credits or prepayments are applied. He had $500 withheld from his salary. After applying the earned income credit, what is Steve’s refund or balance due?
Multiple choice question.
$3,584 refund
$0 balance due/refund
$2,768 refund
$70 balance due
$2,768 refund
The EIC is subject to phase out $3,584 - [($24,000 - $19,330) * .1598] = $2,838 - ($570 - $500) = $2,768.
Business tax credits are _______ credits, but may be carried back one year or forward for ______ years.
Multiple choice question.
refundable; five
nonrefundable; five
refundable; twenty
nonrefundable; twenty
nonrefundable; twenty
When are individual tax returns typically due for calendar-year taxpayers?
Multiple choice question.
December 31
March 15
January 31
April 15
April 15
List the order in which taxpayers with multiple credits should apply them against their gross tax.
1.
2.
3.
- Business credits
- Refundable credits
- Personal nonrefundable credits
- Personal nonrefundable credits
- Business credits
- Refundable credits
Ben’s tax information is as follows:
AGI for 2021 = $101,000
Withholding for 2021 = $5,600
Total tax for 2021 = $10,400
Total tax for 2020 = $11,750
How much per quarter must Ben pay in estimated taxes to avoid a penalty?
Multiple choice question.
$1,050 per quarter
$940 per quarter
$909 per quarter
$3,760 at end of year
$940 per quarter
To avoid the underpayment penalty, Ben must pay the lesser of 90% of the current year tax liability ($9,360) or 100% of the previous year tax liability ($11,750). Since his 2021 withholding will be $5,600, Ben must pay at least $3,760 ($9,360 - $5,600). So, $3,760/4 = $940 per quarter.
Individual tax returns are due on __________ __________ for calendar-year individuals.
April 15
