Topic 6 Final Steps of the Individual Income Tax Formula Chapter 8 Flashcards
The child tax credit is subject to phase-out based on the taxpayer’s AGI.
True or False
True
Business credits are generally refundable credits.
True or False
False
Miley, a single taxpayer, plans on reporting $29,700 of taxable income this year (all of her income is from a part-time job). She is considering applying for a second part-time job that would give her an additional $10,000 of taxable income. By how much will the income from the second job increase her tax liability? (Use the tax rate schedules)
Multiple Choice $1,000 $1,200 $1,300 $2,400
$1,300
Based on the single tax rate schedule, of the additional $10,000 of taxable income, $9,000 is taxed at 12% (the increase $29,700 to $38,700) and the remaining $1,000 ($39,700 minus $38,700) is taxed at 22%. To summarize, ($9,000 × 12%) + ($1,000 × 22%) = $1,300.
Jamie is single. In 2018, she reported $100,000 of taxable income, including a long-term capital gain of $5,000. What is her gross tax liability, rounded to the nearest whole dollar amount? (Use the tax rate schedules, Tax Rates for Net Capital Gains and Qualified Dividends)
rev: 03_29_2019_QC_CS-164414
Multiple Choice $19,443 $18,290 $17,840 $15,000
$17,840
tax rate: $14,089.50 plus 24% of the excess over $82,500
Explanation
$95,000 of the taxable income is taxed at the ordinary rates and $5,000 of the taxable income is taxed at 15%.
During 2018, 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?
Multiple Choice $0 $2,200 $2,800 $1,750
$1,750
$2,800 interest income minus $1,050 standard deduction for person claimed as a dependent on another’s tax return.
The amount of expenditures eligible for the child and dependent care credit is the least of three amounts. Which of the following is not one of those amounts?
Multiple Choice
The total amount of child and dependent care expenditures for the year.
$3,000 for one qualifying person or $6,000 for two or more qualifying persons.
The dependent’s earned income for the year.
The taxpayer’s earned income for the year.
The dependent’s earned income for the year.
Explanation
The reason there is a tax credit is because the taxpayer is taking care of someone who cannot take care of him/herself, thus C does not make sense.
Which of the following is not true of the American opportunity credit?
Multiple Choice
A taxpayer with multiple eligible dependents can claim a credit for each dependent’s qualifying expenses.
The credit is available for students during their first four years of postsecondary education only.
It is phased out based on the taxpayer’s AGI.
A taxpayer may not claim a credit unless the taxpayer pays a dependent’s qualifying educational expenses.
A taxpayer may not claim a credit unless the taxpayer pays a dependent’s qualifying educational expenses.
Explanation
The taxpayer may claim the credit if the dependent pays the expenses or a third party pays the expenses on behalf of the dependent.
Which of the following is not true of the lifetime learning credit?
Multiple Choice
It is a nonrefundable credit.
The credit can be claimed by taxpayers who have graduated from college and are taking professional training courses to improve their job skills.
A taxpayer with multiple dependents can claim a credit for each dependent’s qualifying expenses.
The credit is subject to phase out based on the taxpayer’s AGI.
A taxpayer with multiple dependents can claim a credit for each dependent’s qualifying expenses.
Explanation
The credit applies to the taxpayer and not to the number of the taxpayer’s dependents.
Carolyn has an AGI of $38,000 (all from earned income), two qualifying children, and is filing as a head of household. What amount of earned income credit is she entitled to? (Exhibit 8-10)
Multiple Choice $0 $1,643 $3,461 $4,073 $5,716
$1,643
Explanation
$5,716 maximum credit minus $4,073 phase-out [($38,000 – $18,660) x 0.2106] = $1,643
Which of the following represents the correct order in which credits are applied to gross tax liability (from first to last)?
Multiple Choice
Nonrefundable personal, business, refundable.
Business, nonrefundable personal, refundable.
Refundable, nonrefundable personal, business.
Refundable, business, nonrefundable personal.
Nonrefundable personal, business, refundable.
Explanation
This order is taxpayer-favorable.
Refundableが先だと損する。
Whitney received $75,000 of taxable income in 2018. All of the income was salary from her employer. What is her income tax liability in each of the following alternative situations? Use Tax Rate Schedule for reference. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
a. She files under the single filing status.
12,439.5
$4,453.50 plus 22% of the excess over $38,700
