ACTY 3240 Chapter 14 SB

Eileen and Elliot are married and file a joint return. Their AGI is $105,000, and they report total itemized deductions of $23,250. If they are subject to a 22% marginal tax rate, the incremental tax benefit from itemizing is ______.

$0 Reason: They will take the standard deduction of $24,400, so there is no incremental benefit from itemizing.

Meaghan is a single taxpayer. Her AGI is $37,000, and she reports total itemized deductions of $14,300. If she is subject to a 12% marginal tax rate, the incremental tax benefit from itemizing is ______.

$228 Reason: Tax savings from standard deduction: $12,400 × 12% = $1,488. Tax savings from itemizing: $14,300 × 12% = $1,716. The additional tax savings is $1,716 - 1,488 = $228.

Mildred and Milton and married and filing a joint return. Mildred is 72 years old and blind. Milton 70 years old. Their standard deduction is ______.

$28,700 Reason: The standard deduction is increased by $1,300 if the taxpayer is blind or over the age of 65. Because both are over the age of 65 and Mildred is blind, the standard deduction of $24,800 is increased by 3 × $1,300 = $3,900 to be $28,700.

Brianna has a 25% marginal tax rate. She is offered the following option: A refundable tax credit of $1,000 or an additional itemized deduction of $3,000.Assuming that her itemized deductions exceed the standard deduction, the value of the credit is $___ and the value of the deduction is $___

1000; 750

Jillian is a single parent of two children, ages 14 and 16. She reports AGI of $65,000. Jillian can claim a child credit of ______.

$4000

John is single and reports $50,000 of taxable income. Included in the taxable income number is $2,000 of capital gains subject to a 15% preferential tax rate. John's income tax liability is ______.

$6,650 $2,000 tax at 15% = $300. Tax on remaining $48,000 is $6,350. Total tax is $6,650.

Larissa and Louis are married and file jointly. They report $65,000 of taxable income. Included in the taxable income number is $1,000 of dividend income subject to a 0% preferential tax rate. Their joint income tax liability is ______.

$7,285 Reason: Dividend income is tax free. Tax on remaining $64,000 is $7,285 Total tax is $7,285 + 0 + $7,285.

Trent has a 24% marginal tax rate. He is offered the following option: A tax credit of $1,000 or an additional itemized deduction of $4,000. Assuming that his itemized deductions exceed the standard deduction, which of the following statements are true?

(1) As Trent's marginal tax rate increases, the value of the deduction increases. (2) The value of the $4,000 deduction is $960.

Which of the following types of income are permitted a preferential tax rate?

(1) Capital gains (2) Qualified dividends

Identify which of the following are refundable credits.

(1) Earned Income Credit (2) Excess Social Security

Which of the following could potentially meet the requirements of a qualifying child under the dependency rules?

(1) Taxpayer's niece or nephew (2) Taxpayer's sister or brother (3) Taxpayer's grandchild (4) Taxpayer's child

Mr. and Mrs. White file a joint return. They have two children. Both are full-time college students, and the Whites provide more than half of their financial support. Trenton is 22 years old, lives on campus, and he earned $7,000 from a part-time job. Lisa is 26 years old, lives at home, and earns $2,000 from a part-time job. Which of the following statements are true?

(1) Trenton is a qualifying child. (2) Lisa is a qualifying relative.

Mr. and Mrs. White file a joint return. They have two children. Both are full-time college students, and the Whites provide more than half of their financial support. Trenton is 22 years old, lives on campus, and he earned $7,000 from a part-time job. Lisa is 26 years old, lives at home, and earns $2,000 from a part-time job. Which of the following statements are true? (Select all that apply.)

(1) Trenton is a qualifying child. (2) Lisa is a qualifying relative.

A taxpayer's filing status ______.

(1) may have implications in determining eligibility for certain tax benefits (2) impacts the rates at which income is taxed

Marissa is a single mom with two dependent children. She is 30 years old. Her standard deduction is $

1

Juan is unmarried with no dependents. In 2020, he reports $125,200 of AGI. Included in his AGI is $16,200 of qualified business income and a $1,200 above-the-line deduction for self-employment tax. He also reports $7,800 of itemized deductions. Juan's taxable income is $___

109,800

Molly was employed by Inside Interiors from January to July, earning $70,000 and with Middlebrook Designs from August to December, earning $100,000. For 2020, her excess social security credit is $___

2003

Tom files as a single taxpayer. In 2020, he reports taxable income of $120,000. His tax liability is $___, assuming that he has no income subject to a preferential rate. (round your answer to nearest whole dollar)

22,880

Mark and Mary file a joint return. They are both 40 years old and have two young children. Their standard deduction is $___

24,800

Ryland is a single taxpayer with a 32% marginal tax rate. Each year, his itemized deductions include $3,000 in property taxes and a $6,500 donation to his university, thus he typically does not exceed the standard deduction. If Ryland decides to bunch his deductions by donating $13,000 to his university every other year instead of $6,500 annually, his total deductions over two years will increase by $___, and it will result in a total tax savings of $___

3,600; 1,152

To avoid an underpayment penalty, a taxpayer is required to make timely payments of at least ___ % of their current tax liability or meet the safe-harbor estimate provisions. The threshold for the safe-harbor estimate is ___% of prior year taxes for taxpayers with AGI less than $150,000 and ___% for taxpayers above that threshold.

90; 100; 110

Which of the following statements is true?

A child who is considered a dependent of another taxpayer and who earns income is required to file as a single taxpayer.

Which of the following statements about a qualifying relative as defined under the dependency rules is false?

A qualifying relative must be related to the taxpayer.

Which of the following statements is false with respect to tax payments?

A tax refund indicates that the taxpayer has engaged in careful tax preparation and planning.

Alyssa is a single mother. Based on her AGI and number of children, her earned income credit is $4,215. Her taxable income is $25,000, and the resulting tax is $2,718. Which of the following statements best describes Alyssa's tax position?

Alyssa will owe no federal income tax and will receive a $1,497 refund attributable to the earned income credit.

Which of the following statements about deductions is true?

An above-the-line deduction always reduces taxable income.

Which of the following reflects the typical due dates for quarterly estimated tax payments?

April 15; June 15; September 15; January 15 of the following year

Mr. and Mrs. Backlund file a joint return. They provide more than 50% support for their three children, Lindsay (age 27, full-time college student, earned $10,000 from part-time job), Louisa (age 21, full-time college student, earned $17,000 from part-time job) and John (age 17, earned no income). All three children live full time in the Backlund's home. Which of the following statements is true?

Both John and Louisa are qualifying children of the Backlunds.

Which of the following statement is true?

Differences exist in the computation of taxable income for individuals depending on their filing status.

Which of the following statements about the dependent credit is false?

High income taxpayers are not eligible for the credit.

Marcus is a single taxpayer. His AGI is $75,500 and his itemized deductions total to $7,500. Which of the following statements is true?

His itemized deductions yield no tax benefit.

Which of the following statements about payment of taxes is false?

Investment brokers are required to withhold tax on all investment income.

Mario and Maria Moreno have no children of their own. However, their niece, Lupe, lives with them, and they provide more than one-half of her financial support. Which describes a scenario in which the Moreno's may not consider Lupe a qualifying child?

Lupe is 22 years old, lives with the Morenos full time, and is not a full-time student.

Which of the following is false regarding AGI?

No deductions are included in the computation of AGI.

Indicate which of the following is not a filing status.

Permanent resident of the U.S.

In 2020, Marshall was employed by Buckeye, Inc. until September when he accepted a new position with Spartan Company. Marshall earned $100,000 from Buckeye and $70,000 from Spartan. Which of the following reflects the amount of wages on which Spartan must withhold Social Security and Medicare tax?

Social Security on $70,000; Medicare tax on $70,000

Which of the following statements regarding tax payments is true?

Sole proprietors must make quarterly estimated tax payments for both income and self-employment tax.

Which of the following is false regarding the computation of federal income tax?

Tax is computed by applying the tax rate tables to AGI.

Mr. and Mrs. Henley could not complete their 2020 Form 1040 before April 15, 2021. (Ignore filing extension under the Cares Act.) They estimate that they will owe a balance of $2,500 with the return. Which of the following statements is true?

The Henleys can file an extension request by April 15 to extend the filing deadline six months, but they must pay the balance with the request.

Which of the following statements is false regarding the administration of Social Security tax?

The Social Security Administration is responsible for refunding excess Social Security withheld on a taxpayer.

Which of the following statements are false?

The amount of the standard deduction is directly related to a taxpayer's cash flows.

Which of the following statements is false regarding marginal tax rates for individual taxpayers?

The marginal tax rate can always be determined by consulting the appropriate line on the tax rate schedule.

Which of the following statements is false?

The taxpayer will opt to take the standard deduction if their AGI is less than $72,600.

Which of the following statements about total income is false?

Total income excludes income from business ventures in which the taxpayer engages.

An above-the-line deduction ______ reduces AGI and ______ reduces taxable income. An itemized deduction ______ reduces AGI and ______ reduces taxable income.

always; always; never; sometimes

Milton is a retired, unmarried taxpayer with no dependents. In a typical year, his only itemized deductions are his property taxes of $4,500 and a $6,000 donation to his church. His tax accountant has advised him to consider making an $12,000 contribution to his church every other year instead of an annual $6,000 contribution. This technique is best described as ______.

bunching

A taxpayer's marginal tax rate can be difficult to estimate because

certain deductions and credits are a function of AGI.

An extension of time to file an individual tax return ______.

does not extend the time for payment of tax

Itemized deductions only create a tax savings when itemized deductions ______ the standard deduction.

exceed

True or false: A single taxpayer with $75,000 of taxable income pays tax on that income at a flat rate of 22%.

false

True or false: If requested by the filing deadline, a taxpayer may request a six month extension to both file their return and pay their outstanding tax obligation.

false

Hunt is single. His disabled father lives with him and is considered a dependent. Hunt's filing status is ______.

head of household

Total income ______.

includes both income earned from business ventures and as an employee

The QBI deduction is ______.

is deducted from AGI

The dependent care credit ______.

is only available if the taxpayer has earned income

In 2020, Julia and Rob are both unmarried and file as single taxpayers. Julia's individual tax liability is $22,500 and Rob's is $32,000. If Julia and Rob were married, they would file jointly and their joint tax would be $60,000 which is $5,500 more than the amount computed by adding their individual tax liabilities together. This illustrates the ___ ___ present in the U.S. federal income tax structure.

marriage penalty

The safe-harbor estimate provision ______.

provides taxpayers with certainty because accurately estimating current year tax obligation can be difficult

The child credit ______.

provisions stipulate a maximum credit of $2,000 for each qualifying dependent and $500 for certain non-child dependents

Tax credits ______.

reduce the tax liability by $1 for every $1 of credit

The marriage penalty ______.

refers to the notion that the tax system is not neutral with respect to marital status

Congress enacted the earned income credit as a(n) ___ credit so that taxpayers receive any excess of the credit over the tax liability to offset the payroll tax burden.

refundable

Kelsi and Kirk are both 35 years old and file a joint return. In 2020, their itemized deductions total $22,500. On their 2020 tax return, they will reduce AGI by ______.

the standard deduction of $24,800 Reason: The standard deduction of $24,800 exceeds their itemized deductions of $22,500. Therefore, they will elect to take the standard deduction.

For a given year, filing status is determined ______.

with respect to the criteria evaluated on the last day of the taxable year