Tax Credits, Other Taxes, and Payments 6

Question 1

All of the following individuals file their income tax returns as single. Which one is required to make estimated tax payments for 2016?

A.
Mr. Jones, who had a 2015 tax liability of $9,500, expects a tax liability of $12,400 for 2016, with $8,500 withholding.
B.
Ms. Kirkland, who had no tax liability for 2015, expects to owe $2,500 self-employment tax for 2016 (she has no withholding tax or credits).
C.
Mr. Brady, who had a $2,000 tax liability for 2015, expects a $2,100 tax liability for 2016 and withholding of $1,900.
D.
Ms. Evans, who had no tax liability for 2015, expects a tax liability of $4,900 for 2016, with $3,500 withholding.

Answer 1

A.
Mr. Jones, who had a 2015 tax liability of $9,500, expects a tax liability of $12,400 for 2016, with $8,500 withholding.

Answer (A) is correct.
In general, individuals must make estimated tax payments or be subject to a penalty (Sec.6654). Amounts withheld from wages are treated as estimated tax payments. The annual estimated payment that must be made is equal to the lesser of (1) 90% of the tax for the current year or (2) 100% of the tax for the prior year (Publication17). Also, no penalty will apply to an individual whose tax for the year, after credit for withheld tax, is less than $1,000. Mr.Jones does not meet either the 90% or the 100% test, and his tax after credit for withholding is not less than $1,000. Therefore, he will have to make estimated tax payments

Question 2

A taxpayer is ineligible to claim the Earned Income Credit if his or her disqualified income for the tax year exceeds ?

Answer 2

$3,400 for 2016 [Sec. 32

Question 3

Taxpayers A and B, filing a joint return, earned box 5 Medicare wages of $190,000 and $110,000, respectively. Determine the amount of additional Medicare tax they owe on their final Form 1040.

A.
$25,650
B.
$450
C.
$0
D.
$2,700

Answer 3

B.
$450

Answer (B) is correct.
Married filing joint taxpayers owe the additional Medicare tax of 0.9% of excess income when combined income exceeds $250,000. Taxpayers A and B have a combined income of $300,000 ($190,000 + $110,000) and additional Medicare tax liability of $450 [($300,000 – $250,000) × 0.9%].
C.
$0

Question 4

Mr. K is 67 years old, single, and retired. During the current year, he received a taxable pension from his former employer in the amount of $4,000. His adjusted gross income is $15,000, and he received $650 of nontaxable Social Security benefits. His tax before credits is $330. What is Mr. K’s Credit for the Elderly and the Permanently and Totally Disabled?

A. $90
B. $0
C. $750
I D. $330

Answer 4

$90

Answer A is correct.
An individual who has attained age 65 is allowed a credit equal to 15% of the For a single individual, the initial Sec. 22 amount is $5,000, reduced by any amounts received as Social Security benefits or otherwise excluded from gross income [Sec. 22(c)(3)]. The Sec. 22 amount is also reduced by one-half of the excess of AGI over $7,500 (for a single individual).

Initial Sec. 22 amount

$ 5,000
Less Social Security
(650)
Less AGI limitation

[($15,000 – $7,500) × 50%]
(3,750)

Sec. 22 amount

$ 600

× 15%

K’s credit

$ 90

Since the taxpayer’s tax before credits exceeds the Credit for the Elderly and the Permanently and Totally Disabled, the entire credit can be claimed

Question 5

A single taxpayer has $130,000 in wages and $200,000 in net self-employment income. What is the amount of additional Medicare tax that would be due on Form 1040 for the year?

A. $720
B. $0
C. $1,170
D. $1,845

Answer 5

C. $1,170 
 Answer (C) is correct. 
A single  $200,000 is taxed
MFJ -250,000
MFS 125,000
x.09 of the excess

an additional 0.9% on the excess as a Medicare tax. The taxpayer had total income of $330,000 ($130,000 + $200,000). The additional Medicare tax due is $1,170 [($330,000 – $200,000) × 0.9%].

Question 6

Which of the following is not a tax preference item or an adjustment to taxable income for alternative minimum tax purposes?

A. Addition of the standard deduction (if claimed).
Graded B. Subtraction of any refund of state and local taxes included in gross income.
C. Addition of all itemized deductions (if claimed).
Incorrect D. Addition of personal exemptions.

Answer 6

Addition of all itemized deductions (if claimed).

Answer C is correct.
17).

Question 7

What is the maximum amount of qualified expenses allowed per year for the Lifetime Learning Credit?

A.
$15,000
B.
$10,000
C.
$5,000
D.
$1,000

Answer 7

B.
$10,000

Answer (B) is correct.
The Lifetime Learning Credit provides a credit of 20% of qualified tuition expenses paid by the taxpayer for any year the AOC is not claimed. The maximum credit allowed per year is $10,000 of qualified tuition and fees paid for the taxpayer, the taxpayer’s spouse, and/or the taxpayer’s dependents

Question 8

Question: 9
What is the maximum amount of qualified expenses allowed per year for the Lifetime Learning Credit?

A.
$15,000
B.
$10,000
C.
$5,000
D.
$1,000

Answer 8

B.
$10,000

Answer (B) is correct.
The Lifetime Learning Credit provides a credit of 20% of qualified tuition expenses paid by the taxpayer for any year the AOC is not claimed. The maximum credit allowed per year is $10,000 of qualified tuition and fees paid for the taxpayer, the taxpayer’s spouse, and/or the taxpayer’s depend

Question 9

A taxpayer may be able to take tax credit for Qualified expenses paid to adopt an eligible child of to which amount?

A 9,800
B 11,150
C 12100
D 13460

Answer 9

D 13460

Question 10

Alternative minimum tax for individuals requires certain adjustments and preferences. Which of the following is a preference or adjustment item for noncorporate taxpayers?

A. Tax-exempt interest on certain private activity bonds (not issued in 2009 or 2010).
B. Incentive stock options.
C. All of the answers are correct.
D. Personal exemptions.

Answer 10

C. All of the answers are correct.
Answer (C) is correct.
Several adjustments affect only noncorporate taxpayers. Personal exemptions, tax-exempt interest on private activity bonds (not issued in 2009 or 2010), which is included in investment income, and incentive stock options are examples of these adjustments (Publication 17).

Question 11

Mr. and Mrs. Baker, who file a joint tax return, have an adjusted gross income of $75,000 for 2016. Their son, Tony, began his fifth year of college on July15, 2016. The Bakers’ expenses incurred in 2016 were $6,000 for tuition. What is the amount of Lifetime Learning Credit the Bakers may claim in 2016?

A.
$1,200
B.
$2,000
C.
$6,000
D.
$10,000

Answer 11

A.
$1,200

Answer (A) is correct.
A Lifetime Learning Credit is allowed in the amount of 20% of the first $10,000 of tuition paid (Sec.25A). The Lifetime Learning Credit is available in years the AOC is not claimed. The Bakers’ credit for 2016 will be $1,200 ($6,000 × 20%). There is no phaseout of the Lifetime Learning Credit for the Bakers since the credit phaseout for married taxpayers filing jointly commences when modified AGI is $111,000 and ends at $131,000 (Publication 970).

Question 12

Product Question:
Ms. W, who is single, determined that her total tax liability for Year 2 would be $10,000. W is required to make estimated tax payments if

a: Her Year 1 tax liability was $12,000 and her Year 2 income tax withholding will be $9,000.
b: Her Year 1 tax liability was $9,000 and her Year 2 income tax withholding will be $8,500.
c: Her Year 1 tax liability was $12,000 and her Year 2 income tax withholding will be $9,750.
d: Her Year 1 tax liability was $5,000 and her Year 2 income tax withholding will be $6,000.

Answer 12

Correct Answer: b
Your Question: I am still loss with this,
can you please simplify explaining how each answer came up

Thanks
Marcos
Response:
Please note that the annual estimated payments for taxes should be equal to the lesser of 90% of the current year’s tax or 100% of the prior year’s tax.

The question is asking which of the following statements would require Ms. W to make estimated payments, given that the current year’s tax liability is $10,000. The current year’s 90% threshold is $9,000 ($10,000 * 90%). Each scenario lists the tax liability for year 1 and the amount that has been withheld in year 2. The only scenario that requires additional payment is the correct answer. In this case, the 90% and 100% amounts are equal (both $9,000) and withholding leaves $500 ($9,000 - $8,500) that has not been paid. Therefore, an additional payment of $500 is necessary and makes answer choice, “Her Year 1 tax liability was $9,000 and her Year 2 income tax withholding will be $8,500,” the correct

Question 13

Karen, filing as head of household, and her son James and daughter Julia are all in graduate school. James and Julia are not dependents on Karen’s return, although they live with her and she pays all of their education expenses. Karen paid $6,000 in qualified tuition expenses for herself in January 2016 for the term starting in January 2016. She also paid $2,500 in qualified tuition expenses for James and another $2,500 for Julia in July 2016 for the term starting in July 2016. Her adjusted gross income is $70,000. Which of the following is true for tax year 2016?

A.
Karen may claim no AOC and $1,000 Lifetime Learning Credit.
B.
Karen may claim $5,000 AOC and $1,000 Lifetime Learning Credit.
C.
Karen may claim no AOC and $2,000 Lifetime Learning Credit.
D.
Karen may claim neither the AOC nor the Lifetime Learning Credit.

Answer 13

D.
Karen may claim neither the AOC nor the Lifetime Learning Credit.

Answer (D) is correct.
The AOC and Lifetime Learning Credit may not be claimed at the same time for an individual. The AOC is available during a student’s first 4 years in college (Sec.25A). Since Karen and each child are in graduate school, she does not qualify for the AOC. The Lifetime Learning Credit is available in years that the AOC is not taken (for example, fifth and later years of college). However, the Lifetime Learning Credit phases out for single filers whose AGI is between $55,000 and $65,000. Since Karen’s AGI is $70,000, the Lifetime Learning Credit is completely phased out (Publication 17).

Question 14

Rev.Janice Burton is a full-time minister at the Downtown Missionary Church. The church allows her to use the parsonage that has an annual fair rental value of $4,800. The church pays an annual salary of $13,200, of which $1,200 is designated for utility costs. Her utility costs during the year were $1,000. What is Rev.Burton’s income for self-employment tax purposes?

A.
$13,200
B.
$12,200
C.
$13,400
D.
$18,000

Answer 14

D.
$18,000

Answer (D) is correct.
In the case of a minister, net earnings from self-employment in connection with the performance of religious duties are computed without regard to Sec. 107 (exclusion of rental value of home or parsonage) (Publication 517). Therefore, the $13,200 annual salary plus the $4,800 rental value is used to determine Rev.Burton’s self-employment taxes.

Question 15

Jerry has two dependent children, Greg and Mandy, who are attending an accredited college in 2016. Greg, a fifth-year senior since January 1, spent $7,000 for tuition and fees. Mandy, a freshman with no prior post-secondary education, had tuition expenses of $4,000. Jerry meets all the income and filing status requirements for the education credits. There is no tax-free assistance to pay these expenses. Jerry’s tax liability before credits equals $14,000. What is the maximum credit that Jerry may claim on his 2016 tax return?

a: $2,500 AOC and $1,400 Lifetime Learning Credit.
b: $5,000 AOC.
c: $2,200 Lifetime Learning Credit.
d: $2,500 AOC and $1,000 Lifetime Learning Credit.

Answer 15

Your Answer: a
Your Answer: a
Correct Answer: a 
Response: 
Please note that the credits are not being used for the same individual. The AOC is used for Mandy, and the Lifetime Learning Credit is used for Greg. Therefore, the lifetime learning credit of $1,400 is calculated based on the 20% maximum allowance multiplied by the amount spent on tuition and fees or $7,000 x .2 = $1,400.

Question 16

Which of the following is earned income for Earned Income Credit purposes?

A.
Alimony. 
B.
The wages of an inmate working in the prison laundry.
C.
The wages of a minister who has an exemption from self-employment tax.
D.
Unemployment compensation.

Answer 16

C.
The wages of a minister who has an exemption from self-employment tax.

Answer (C) is correct.
The Earned Income Credit is based on all earned income, which includes wages, salaries, tips, other employee compensation, and net earnings from self employment. Earned income does not include interest and dividends, welfare benefits, veteran’s benefits, pensions or annuities, alimony, Social Security benefits, workers’ compensation, unemployment compensation, taxable scholarships or fellowships that are not reported on the taxpayer’s W-2 form, amounts received for services performed by prison inmates while in prison, amounts that are subject to Code Sec. 871(a), or payments received from work activities if sufficient private sector employment is not available and from community service programs.

Question 17

Which of the following statements is not true regarding tax benefits for education?

A. Room and board are qualifying expenses for the AOC.
B. The Lifetime Learning Credit is allowed for tuition paid for graduate program studies.
C. The AOC may be claimed for tuition expenses incurred in the first 4 years of post-secondary education.
D. The dollar limitations for the AOC are calculated on a per-student basis.

Answer 17

A. Room and board are qualifying expenses for the AOC.
Answer (A) is correct.
The AOC provides a maximum nonrefundable tax credit of $2,500 per student for each of the first 4 years of post-secondary education. The $2,500 per year is the sum of 100% of the first $2,000 of qualified expenses and 25% of the next $2,000 of qualified expenses. The Lifetime Learning Credit provides a credit of 20% of qualified tuition expenses paid by the taxpayer for any year the AOC is not claimed. The maximum credit allowed per year is $10,000 of qualified tuition and fees paid for the taxpayer, the taxpayer’s spouse, and/or the taxpayer’s dependents. Eligible expenses for both of these credits include tuition and fees required for enrollment. Books and required course materials are allowed for the AOC but not the Lifetime Learning Credit. However, the credits may not be used for room and board, activity fees, athletic fees, insurance expense, or transportation (Publication 970).

Question 18

Which of the following is not requirement for a qualifying child for purpose of child tax credit?

A The child is claimed as your dependent
B The child was under age 19 at the end of the year and was a student
C The Child is your soon, daughter, adopted child, grandchild, stepchild or foster child
d The child is a citizen or residence of the US

Answer 18

B To claim the child tax credit, a qualifying child must be under 17 at the end of the year

Question 19

The Minimum Tax Credit (MTC) allocable for the current year is limited to

A.
Current-year gross regular tax (reduced by certain credits) minus current-year tentative minimum tax.
B.
Current-year gross regular tax (reduced by certain credits) plus current-year tentative minimum tax.
C.
Current-year gross regular tax (without regard to any credits) minus current-year tentative minimum tax.
D.
Current-year gross regular tax (reduced by certain credits) minus previous-year tentative minimum tax.

Answer 19

A.
Current-year gross regular tax (reduced by certain credits) minus current-year tentative minimum tax.

Answer (A) is correct.
The MTC allowable is limited to current-year gross regular tax (reduced by certain credits) minus current-year tentative minimum tax.

Question 20

Which statement pertaining to estimated tax payments is not correct?

A. An individual, whose only income is from self-employment, will have to pay estimated payments.
Graded B. If insufficient tax is paid through withholding, estimated payments may be necessary.
C. Estimated tax is used to pay not only income tax, but self-employment tax and alternative minimum tax as well.
Correct D. Estimated tax payments are required when the withholding taxes are greater than the overall tax liability.

Answer 20

D. Estimated tax payments are required when the withholding taxes are greater than the overall tax liability.

Estimated tax payments are only required when insufficient tax is paid through withholding.

Question 21

Mr. and Mrs. Robinson are both over age 65 and file a joint return. During the current year, they received $4,000 in nontaxable benefits from Social Security. This was their only nontaxable income. Their adjusted gross income was $12,000. How much can they claim as tentative credit for the elderly?

A. $375
B. $225
C. $525
D. $0

Answer 21

A. $375 
 Answer (A) is correct. 
In the case of an individual who has attained age 65 before the close of the taxable year, Sec. 22(a) allows a credit equal to 15% of the individual’s Sec. 22 amount. ''
Step 1
MFJ Qu=75000
-SS
-1/2 Exces AGi (10,000Mfj or $7500 Single)
. 

22(c)(3)]. The Sec. 22 $10,000 (in the case of a joint return), which is $1,000 [($12,000 – $10,000) × 50%] for the Robinsons (Publication 524).

Step 1
$ 7,500
Less Social Security

(4,000)

Less AGI limitation

(1,000)

Sec. 22 amount

$ 2,500
× .15 Step 2-The credit is equal 15% base amt

Robinsons’ tentative credit for the elderly

$ 375

Question 22

Which of the following is not disqualified income for purposes of the Earned Income Credit?

A. Income earned from part-time employment.
B. Tax-exempt interest income.
Incorrect C. Net capital gain income.

Answer C is incorrect.
It is disqualified income for purposes of the Earned Income Credit.

Graded D. Net rent and royalty income.

Answer 22

Income earned from part-time employment.

Answer A is correct.
A taxpayer is ineligible to claim the Earned Income Credit if his or her disqualified income for the tax year exceeds $3,400 for 2015 [Sec. 32(i)]. Income earned from part-time employment is not disqualified income. For purposes of the Earned Income Credit, disqualified income includes taxable and tax-exempt interest, dividends, net rental and royalty income, net capital gain income, and net passive income.

Question 23

A single taxpayer has adj gross income of $65,000 , no foreing source of income and tax before credit of more than $3000. Her dependents include her son, who turned 17 in September, her daughter whos is 12 and a niece, who is 6. ALl the children are US citizens f lived with her all year. What is the amount of child tax credit she can claim?

A 0
B $1000
C $2000
D $3000

Answer 23

C 2000

The Max credit can be claimed is $1000 for each child under 17.
Daugher and Nience

Tax liability less than the credit
AGI phaseout
MFJ 110,000
Single Hh qw $75,000
MFS $55,000
citizen
child did not provide over half their own support
Lived with taxpayer over 1/2 year
Child, stepchild, adopoted child. grandchild brother, sister, stepfother or any decedant

Question 24

Mr H is 55 Years old. In order to qualify for the credit of the elderly or disabled he must have:

A. Retired on permanent and total disability
B. Received nontaxable disability benefits
C. Reached Mandatory retirement age
D worked at least part time of the minimum wage in of the precedent years

Choose 1 and name others

Answer 24

Answer A Retired on permanent and total disability

1 be at age 65 or older bye the end of the tax year or

If under age 65, the individual must meet the following
A be retired on permanent and total disability
b Did not reach mandatory retirement age before the tax year and

c Receive taxable disibality benefits

Question 25

With respect to the alternative minimum tax for individuals, all of the following are tax preference items except

A.
Tax-exempt interest on private activity bonds (not issued in 2009 or 2010).
B.
Depletion.
C.
Casualty loss from Schedule A.
D.
Intangible drilling costs.

Answer 25

C.
Casualty loss from Schedule A.

Answer (C) is correct.
A casualty loss is not an adjustment and is allowed as a deduction for alternative minimum taxable income purposes. Hence, it is not considered a tax preference item. (Publication 17).

Question 26

Rev. Elvin Snider is the ordained minister at Crossroads United Methodist Church. His salary on his Form W-2 is $20,000. He also receives a $12,000 housing allowance. His housing costs for the year are $14,000. What is Rev. Snider’s self-employment income?

A. None of the answers are correct.
B. $34,000
C. $20,000
D. $32,000

Answer 26

D. $32,000

Answer D is correct.
Ministers may exclude from gross income the rental value of a home or a rental allowance to the extent the allowance is used to provide a home, even if deductions are taken for home expenses paid with the allowance. However, a minister should include any offerings given directly to him or her for church-related functions (i.e., marriages). The income inclusion for self-employment taxes differs from gross income inclusion in the case of ministers and/or clergymen. Under the gross income inclusion rules, a minister may exclude the rental value of his or her home or parsonage if it is connected with the performance of religious duties. However, the rental value is not excluded from the income used to compute self-employment taxes. Therefore, the minister’s self-employment income is $32,000 ($20,000 salary plus $12,000 housing allowance). (Publication 517.)

Question 27

Alternative minimum tax for individuals requires certain adjustments and preferences. Which of the following is a preference or adjustment item for noncorporate taxpayers?

A.
Personal exemptions.
B.
Incentive stock options.
C.
All of the answers are correct.
D.
Tax-exempt interest on certain private activity bonds (not issued in 2009 or 2010).

Answer 27

C.
All of the answers are correct.

Answer (C) is correct.
Several adjustments affect only noncorporate taxpayers. Personal exemptions, tax-exempt interest on private activity bonds (not issued in 2009 or 2010), which is included in investment income, and incentive stock options are examples of these adjustments (Publication 17).