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Exam 7: Individual Income Tax Computation and Tax Credits

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Question 41

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John and Sally pay Janet (Sally's older sister) to watch John and Sally's child Dexter during the day. Janet cares for Dexter in her home. John and Sally may claim a child and dependent care credit based on the amount they pay Janet to care for Dexter.

A) True
B) False

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Question 42

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Depending on the year, the original (unextended) due date for an individual's tax return may be after April 15.

A) True
B) False

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Question 43

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Clarissa's gross tax liability for 2014 is $1,300. She has a $1,500 nonrefundable personal tax credit, a $750 business tax credit, and a $400 refundable personal tax credit. Her employer withheld $1,000 from her pay for taxes. What is her net tax due or refund for this year?

Generally, income from an active trade or business is subject to the 3.8% Net Investment Income tax.

The tax rate schedules are set up to tax lower levels of income at higher tax rates than higher levels of income.

During 2014, Jasmine (age 12) received $2,400 from a corporate bond. She also received $600 from a savings account established for her by her parents. Jasmine lives with her parents and she is their dependent. Assuming her parents' marginal tax rate is 28%, what is Jasmine's gross tax liability?

Which of the following is not typical of taxpayers who are most likely affected by the AMT?

Hester (age 17) is claimed as a dependent by his parents, Charlton and Abigail. In 2014, Hester received $10,000 of qualified dividends and he received $6,000 from a part time job. What is his taxable income for 2014?

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?

Pyrrha, a 12-year-old dependent of Epimetheus and Pandora, received $2,100 of interest income in 2014. Her parents' marginal tax rate is 35%. What is Pyrrha's gross tax liability for the year?

Selene made $54,300 in 2014 working at the local burger joint, Moon Café. How much should her employer withhold from her paycheck for FICA taxes if the calculation is made correctly?

Which of the following is not true of the extension to file an individual tax return?

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?

Hera wants to reduce her income tax liability by shifting some of her income to her 10-year-old daughter (a dependent), Athena. Last year, Hera gifted corporate bonds to Athena. This year, Athena received $1,500 in interest income from the bonds. What amount of tax will Athena pay on the interest income?

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

Parents may claim a child tax credit for a dependent child who is 22 years of age at the end of the year if the child is a full-time student.

Which of the following is not one of the general tax credit categories?

Which of the following statements regarding FICA taxes is true?

The alternative minimum tax is the AMT base multiplied by the AMT rate.

During all of 2014, Mr. and Mrs. Clay lived with their four children (all are under the age of 17). They provided over one-half of the support for each child. Mr. and Mrs. Clay file jointly for 2014. Neither is blind, and both are under age 65. They reported the following tax-related information for the year $\begin{array}{llcc} \text {Salary income } &\$125,000 \\ \text { Prize from local radio station} &1,500\\\\ \text {Medical expenses (no health insurance) } &4,000\\ \text {Real estate taxes } &4,200\\ \text { Alimony paid by Mr. Clay } &12,000\\ \text {State income taxes withheld in 2014 } &1,800\\ \text {State income taxes paid with 2014 tax return (return was filed } & \\ \text { in April, 2015) } &1,500\\ \text {Federal income tax withholding } &7,500\\ \text { Qualified home mortgage interest } &11,000\\ \text {Charitable contributions } &4,000\\\end{array}$ A. What is the Clays' taxes payable or (refund due) (ignore the alternative minimum tax)? B. What is the Clays' tentative minimum tax and alternative minimum tax?