Chapter 8 Flashcards
Jamie is single. In 2023, she reported $100,000 of taxable income, including a long-term capital gain of $5,000. What is her gross tax liability? (Use the tax rate schedules, long-term capital gains tax brackets.)
$16,958
$95,000 of the taxable income is taxed at the ordinary rates, and $5,000 of the taxable income is taxed at 15 percent.
During 2023, 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?
$1,550
$2,800 interest income minus $1,250 standard deduction for person claimed as a dependent on another’s tax return.
In 2023, Maia (who files as a head of household) reported regular taxable income of $115,000. She itemized her deductions, deducting $20,000 in charitable contributions and $3,000 in state income taxes. What is Maia’s alternative minimum taxable income?
$118,000
$118,000 = $115,000 + $3,000
Which of the following items is not added back to regular taxable income in computing alternative minimum taxable income?
a) home mortgage interest expense
b) real property taxes
c) Tax-exempt interest from a private activity bond issued in 2007
d) state income taxes
Home mortgage interest expense
Interest expense on a home mortgage is deductible for AMT and so is not added back to regular taxable income.
Hera earned a $175,000 salary in 2023. Her husband, Zeus, earned $100,000 salary in 2023. Hera and Zeus file a joint tax return. How much in FICA taxes will they owe in 2023?
$20,345
The cap on Social Security taxes applies to each individual taxpayer. Thus, Hera will owe ($160,200 × 6.2% = $9,932.4) and Zeus will owe ($100,000 × 6.2% = $6,200), totaling $16,132.4 in Social Security taxes. Their Medicare tax liability is determined jointly based on their combined salaries of $275,000, as follows: (sum of (a) Medicare tax, $275,000 × 1.45% = $3,987.50 + (b) additional Medicare tax, $25,000 × 0.9% = $225, which equals $4,212.50). Thus, Hera and Zeus will owe $20,345 in FICA taxes ($16,132.4 Social Security tax + $3,987.50 Medicare tax + $225 additional Medicare tax), rounded.
Which of the following best describes the manner in which self-employed taxpayers may deduct self-employment taxes?
a) deduct employer portion from AGI
b) deduct entire amount from AGI
c) deduct employer portion for AGI
d) deduct entire amount for AGI
e) no deduction
c) deduct employer portion for AGI
This is a for AGI deduction, as it is considered a cost of doing business. The employer portion is deductible.
Rhianna and Jay are married filing jointly in 2023. They have six children under age 17 for whom they may claim the child tax credit. Their AGI was $419,400. What amount of child tax credit may they claim on their 2023 tax return?
$11,000
($419,400 − $400,000) ÷ $1,000 = 19.4, rounded up to 20. 20 × $50 = $1,000 phase-out. $12,000 − $1,000 = $11,000.
Trudy is Jocelyn’s friend. Trudy looks after Jocelyn’s four-year-old son during the day so Jocelyn can go to work. During 2023, Jocelyn paid Trudy $4,000 to care for her son. What is the amount of Jocelyn’s child and dependent care credit if her AGI for the year was $30,000? (Exhibit 8-9)
$810
In 2023, the maximum expenditure for one child is $3,000. The applicable percentage is 27 percent. So, the allowable credit is $810 ($3,000 × 27%).
Carolyn has an AGI of $38,000 (all from earned income) and two qualifying children and is filing as a head of household. What amount of earned income credit is she entitled to? (Exhibit 8-10)
$3,142
$6,604 maximum credit minus $3,462 phase-out [($38,000 − $21,560) × 0.2106] = $3,142.
If there is not enough gross tax liability to use the foreign tax credit, _____ .
it is carried back one year or forward 10 years
The foreign tax credit can be carried to years within this time period when the taxpayer has sufficient gross tax liability to use it.
Which of the following tax credits is fully refundable?
a) American opportunity tax credit
b) Lifetime learning credit
c) Earned income credit
d) none of the choices are correct
Earned income credit
Because it is refundable, the earned income credit is sometimes referred to as a negative income tax.
Cassy reports a gross tax liability of $1,000. She also claims $400 of nonrefundable personal credits, $700 of refundable personal credits, and $200 of business credits. What is Cassy’s tax refund or tax liability due after applying the credits?
$300 refund
$1,000 tax liability minus $400 nonrefundable personal credits minus $200 (business credit is nonrefundable) minus $700 refundable credit = $(300). (The last $700 is refundable.)
Why would a taxpayer file a tax return if not required to do so?
To claim a refund of taxes paid
Which of the following is not true of the extension to file an individual tax return?
a) It is granted automatically by the IRS if requested.
b) It must be requested by the original due date of the return.
c) It extends the due date for the return and associated tax payments beyond the original due date of the tax return.
d) The extension is for six months beyond the original due date.
c) It extends the due date for the return and associated tax payments beyond the original due date of the tax return.
The extension is for filing the return—the taxes are still due on the original due date.
Which of the following taxpayers (all age 40) is/are required to file a return?
Taxpayer Filing Status Gross Income
Jenny and Jim Married Filing Jointly $ 28,700
Allen Single $ 10,300
Timmy Head of Household $ 15,000
Jenny and Jim
Jenny and Jim have a gross income in excess of the standard deduction for their filing status ($27,700).
