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Exam 8: Individual Income Tax Computation and Tax Credits

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Question 1

Multiple Choice

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Harrison received a qualified dividend. Without knowing any additional facts, which of the following statements is true regarding the rate at which the dividend will be taxed to Harrison?

A) The dividend will be taxed at a 20% tax rate.
B) The entire dividend will be taxed at either 15% or the entire dividend will be taxed at 20% depending on Harrison's marginal ordinary income tax rate.
C) The dividend will be taxed at a 15% tax rate.
D) None of the choices are correct.

E) A) and B)
F) B) and C)

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Question 2

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The lifetime learning credit can be used toward the cost of any course of instruction to acquire or improve a taxpayer's job skills, no matter the age of the taxpayer.

A) True
B) False

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Question 3

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An 80-year-old taxpayer with earned income and no dependent children could qualify for the earned income credit.

Jocelyn, a single taxpayer, had $742,000 of taxable income in 2017. All of the income is ordinary.What is her tax liability for the year? (Use Tax Rate Schedule.)

Regular taxable income is the starting point for determining the alternative minimum tax.

Which of the following does not affect the amount of the earned income credit?

Sheryl's AGI is $250,000. Her current tax liability is $52,068. Last year, her tax liability was $48,722. She will not owe underpayment penalties if her total estimated taxpayments are at least which of the following (rounded) amounts (assume she makes the required payments each quarter) ?

Long-term capital gains, dividends, and taxable interest income are all taxed atpreferential rates.

Which of the following statements regarding late filing penalties is true?

For alternative minimum tax purposes, taxpayers are required to add back the regular tax standard deduction amount for their filing status whether or not they itemized deductions for regular tax purposes.

Both the width (or range) of the tax brackets (the amount of income taxed at a particularrate) in the tax rate schedules and the range of the tax rates in the tax rate schedules (the difference between the lowest tax rate and the highest tax rate) vary by filing status.

If a married couple has one primary breadwinner, filing a joint return will likely result ina marriage penalty.

Kaelyn's mother, Judy, looks after Kaelyn's four-year-old twins so Kaelyn can go to work (she drops off and picks up the twins from Judy's home every day) . Since Judy is a relative, Kaelyn made sure, for tax purposes, to pay her mother the going rate for child care ($6,300 for the year) . What is the amount of Kaelyn's child and dependent carecredit if her AGI for the year was $36,000? (Exhibit 8-9 in the text)

Which of the following statements regarding the child and dependent care credit is false?

For married couples, the Social Security wage base limitation applies separately to each spouse.

Linda is a qualifying widow in 2017. In 2017, she reports $80,000 of taxable income (all ordinary) . What is her gross tax liability using the tax rate schedules? (Tax rate schedule)

The alternative minimum tax system requires taxpayers to apply an alternative tax rate on the regular income tax base to determine the amount of the alternative minimum tax.

Which of the following could explain why a large number of taxpayers are subject to (or could become subject to) AMT?

Keith and Nicole are married filing joint with two daughters who qualify as dependents. Their gross income for 2017 is $21,100. Are they required to file a tax return? How do you know this without memorizing the gross income thresholds? In 2017, the standard deduction for taxpayers filing a joint return is $12,700 and the personal exemption is $4,050.