Chap 14 Tax

All of the following are self-employment income except

dividends received by a corporate shareholder.

In computing the alternative minimum taxable income, no deduction is allowed for

personal exemptions

With respect to estimated tax payments for a taxpayer with AGI of $150,000 or lower in the prior year, all of the following are generally true with the exception of

no underpayment penalty is imposed if the estimated payments total at least 90% of the actual tax liability for the prior year.

Nonrefundable tax credits

only offset a taxpayer's tax liability in the current year.

Lee and Whitney incurred qualified adoption expenses in 2016 of $2,000, and then incurred $7,000 more in 2017 when the adoption of their child became final. Their 2016 AGI was $120,000 and their 2017 AGI was $140,000. The allowable adoption credit is

$ 9,000 in 2017.

Layla earned $20,000 of general business credits from her sole proprietorship. Her regular tax liability is $45,000, and her tentative minimum tax is $49,000. During the current year Layla will apply general business credits of

$0.

In the fall of 2017, Gina went back to school to earn a master of taxation degree. She incurred $7,000 of qualified educational expenses and her modified AGI for the year was $58,000. Her Lifetime Learning Credit is

$1,120.

Marvin and Pamela are married, file a joint return, and have two children, ages 9 and 11. Their combined AGI is $65,000. Marvin's earned income is $40,000; Pamela's is $25,000. They incur $6,500 of child care expenses to enable them to be employed during the current year. Their child and dependent care credit is

$1,200.

Joan earns $118,700 in her job as a physician's assistant. She also has her own business selling cosmetics. This business generated $10,000 of earnings. What is Joan's self-employment tax for 2017?

$1,322

In the fall of 2017, James went back to school to earn a master of accountancy degree. He incurred $7,000 of qualified educational expenses and his modified AGI for the year was $40,000. His Lifetime Learning Credit is

$1,400.

Joe, who is single with modified AGI of $84,000, is sending his son to his first year of college. The total tuition and related payments during the year amounted to $18,000. Joe has not taken advantage of any other type of tax benefit related to educational expenses. His American Opportunity Tax Credit is

$1,500.

Tanya has earnings from self-employment of $240,000, resulting in self-employment tax of $22,200 and Additional Medicare Tax of $360. Due to these taxes, Tanya will be allowed a deduction for AGI of

$11,100.

Carlotta, Inc., has $50,000 foreign-source income and $150,000 worldwide income. Its U.S. tax on its worldwide income is $42,000, and it paid foreign taxes of $12,000. What is the corporation's foreign tax credit?

$12,000

Evan and Barbara incurred qualified adoption expenses in 2016 of $6,000, and then incurred $9,000 more in 2017 when the adoption of their child became final. Their 2016 AGI was $110,000 and their 2017 AGI was $100,000. The allowable adoption credit is

$13,570 in 2017.

Carlotta, Inc., has $50,000 foreign-source income and $150,000 worldwide income. Its U.S. tax on its worldwide income is $42,000, and it paid foreign taxes of $16,000. What is the corporation's foreign tax credit?

$14,000

Octo Corp. purchases a building for use in its business at a cost of $100,000. The building was built in 1930 and needs substantial work so it can be used. Octo spends $150,000 on qualifying renovations. Octo will earn a rehabilitation credit of

$15,000.

Jake and Christina are married and file a joint return for 2017 with taxable income of $100,000 and tax preferences and adjustments of $20,000 for AMT purposes. Their regular tax liability is $16,478. What is the amount of their total tax liability?

$16,478

Drake and Davina are married and file a joint return for 2017 with taxable income of $100,000 and tax preferences and adjustments of $51,000 for AMT purposes. Their regular tax liability is $16,478. What is the amount of their total tax liability?

$17,290

Jorge has $150,000 of self-employment earnings from a sole proprietorship. Jorge's self-employment tax (rounded) for 2017 is

$19,790.

Timothy and Alice, who are married with modified AGI of $90,000, are sending their daughter to her first year of college. Their total tuition and related payments during the year amounted to $13,000. In addition, their daughter received a $10,000 scholarship to cover tuition. They have not taken advantage of any other type of tax benefit related to educational expenses. Their American Opportunity Tax Credit is

$2,250.

Lavonne has a regular tax liability of $13,239 on taxable income of $70,000. She also has tax preferences of $25,000 and positive adjustments attributable to limitations on itemized deductions of $15,000. Lavonne is single and takes a $4,050 personal exemption for herself only. Lavonne's alternative minimum tax for 2017 is

$2,296.

Jeffery and Cassie, who are married with modified AGI of $90,000, are sending their son to his first year of college. Their total tuition and related payments during 2017 amounted to $5,500. They have not taken advantage of any other type of tax benefit related to educational expenses. Their American Opportunity Tax Credit for 2017 is

$2,500.

The maximum amount of the American Opportunity Tax Credit for each qualified student is

$2,500.

Kerry is single and has AGI of $25,000 in 2017. During the year he contributes $5,000 to his Roth IRA. What is the amount of qualified retirement savings contributions credit to which he is entitled?

$200

Hong earns $127,300 in her job as a physician's assistant. She also has her own business selling cosmetics. This business generated $10,000 of earnings. What is Hong's self-employment tax for 2017?

$268

In 2017, Rita is divorced with one child. She has AGI of $20,000 resulting in a federal income tax liability of $255 and an earned income credit of $3,135. She has had $550 of federal income taxes withheld from her pay. Rita will receive a federal income refund of

$3,430.

Doggie Rx Inc. is a new company developing a tasty chewable pill for dogs that will protect them from all types of fleas, ticks and intestinal parasites. This is its first year of business, and it has spent $500,000 on qualifying research expenditures. Doggie Rx will earned a simplified research credit of

$30,000.

Indie Corporation purchases a building for use in its business at a cost of $100,000. The building was built in 1900 and is a certified historic structure. Indie spends $150,000 on qualifying renovations certified as consistent with the buildings character. Indie will earn a rehabilitation (historic) tax credit of

$30,000.

Mark and Stacy are married, file a joint return, and have one child, age 3. Their combined AGI is $55,000. Mark and Stacy incur $3,500 of child care expenses during the current year. Mark's employer reimburses him $1,500 under a qualified dependent care assistance plan. The child and dependent care credit is

$300.

Suzanne, a single taxpayer, has the following tax information for the current year. • Charitable contribution of real property with a FMV of $25,000 (adjusted basis $20,000) for which a $25,000 deduction was taken for regular tax. • Research and experimental expenses of $40,000 deducted in full for regular tax. Suzanne's total tax preferences and adjustments equals

$36,000.

Reva and Josh Lewis had alternative minimum taxable income of $350,000 in 2017 and file a joint return. For purposes of computing the alternative minimum tax, their exemption is

$37,225.

Dwayne has general business credits totaling $30,000 before limitation. His regular tax liability is $83,000 and his tentative minimum tax is $79,000. What amount of general business credit can Dwayne take this year?

$4,000

Margo and Jonah have two children, ages 13 and 17. Their modified AGI is $120,500. What is their child tax credit?

$450

Max and Alexandra are married and incur $5,500 of qualifying expenses to care for their two children, ages 2 and 5. Max's earned income is $35,000 and Alexandra's earnings from a part-time job are $5,000. What is the amount of the qualifying expenses for purposes of computing the child and dependent care credit?

$5,000

Kors Corporation has 30 employees and $5 million of gross receipts. Kors spends $15,000 for qualified structural improvements for access for the disabled. The disabled access credit is

$5,000.

A corporation has $100,000 of U.S. source taxable income and $300,000 of foreign source taxable income from countries X and Y for a total worldwide taxable income of $400,000. Countries X and Y levy a total of $60,000 in foreign taxes upon the foreign source taxable income. U.S. taxes before credits are $140,000. The foreign tax credit limitation is

$60,000.

Rex has the following AMT adjustment factors: -Depreciation of real property acquired in 1996 using MACRS is $22,000 while depreciation for AMT purposes is $15,000. -R&E expenditures amounting to $60,000 are expensed. The net adjustment is

$61,000.

John has $55,000 of self-employment earnings from a sole proprietorship. John is also employed part-time by a major corporation and is paid $25,000. John's self-employment tax for 2017 is

$7,771.

Bud and Stella are married, file a joint return, and have one child, age 3. Their combined AGI is $35,000. Bud and Stella incur $3,500 of child care expenses during the current year. The child and dependent care credit is

$750.

Ava has net earnings from self-employment of $125,000. She also earned salary of $170,000 from a job held earlier in the year. How much Additional Medicare Tax will be owed on the self-employment income?

$769

Mr. and Mrs. Lewis have an alternative minimum tax base of $312,000. Their tentative minimum tax will be

$83,604.

In 2017, Charlton and Cindy have alternative minimum taxable income of $130,000 and file a joint return. For purposes of computing the alternative minimum tax, their exemption is

$84,500.

Marguerite and Josephus have two children, ages 13 and 10. Their modified AGI is $120,500. What is their child tax credit?

$900

ChocoHealth Inc. is developing new chocolate products providing abundant health benefits at low calorie counts. For the past three years, it spent an average of $500,000 per year on research. ChocoHealth has spent $900,000 on research. The company has elected the simplified credit. For the current year, it will earn a research credit of

$91,000.

An individual taxpayer who is self-employed and an active investor has qualified for foreign tax credits, nonrefundable personal tax credits and general business credits. Because he knows there are differing limitations on the application of these credits, with resulting interrelated aspects, he wants to know the appropriate order for their application. The appropriate order of the application of these three classes of tax credits is as follow:

(1) nonrefundable personal tax credits; (2) foreign tax credits; (3) general business credits.

If a taxpayer's AGI is greater than $150,000, no penalty will be imposed if the taxpayer pays estimated tax payments in 2017 equal to what percentage of 2016's income tax liability?

110%

The general business credit may not exceed the net income tax minus the greater of the tentative minimum tax or

25% of the net regular tax liability above $25,000.

Runway Corporation has $2 million of gross receipts in the preceding year. For purposes of the disabled access credit, what is the maximum number of full-time employees the corporation can have in the preceding year?

30

Which of the following expenditures will qualify as a research expenditure for purposes of the research credit?

An ice cream producer develops a new type of packaging that will keep ice cream frozen while driving home from the grocery store.

All of the following statements are true regarding the Lifetime Learning Credit except which one?

In order to qualify for the Lifetime Learning Credit, a student must be enrolled at least 1/2 time.

A wage cap does not exist for which of the following self-employment taxes?

Medicare hospital insurance

Mingming and Xavier, unrelated single taxpayers, have each incurred a $1,000 expenditure. Before considering this expenditure, Mingming has taxable income of $500,000 and Xavier has taxable income of $32,000. Assume the expenditure qualifies as either a tax deduction or a 25% credit. Which of the following statements is correct?

Mingming will prefer the deduction, but Xavier will prefer the credit.

Self-employment taxes include components for

Social Security and Medicare hospital insurance.

To help retain its talented workforce, Zapper Corporation opens a child care facility in the building next to its offices. It spends $200,000 on rent, salaries and supplies. With respect to the $200,000 expenditure, Zapper will be entitled to a tax credit and a tax deduction of

Tax Credit Tax Deduction $50,000 $150,000

Which statement is correct?

Tax credits reduce tax liability on a dollar-for-dollar basis.

Amelida expects to earn $145,000 of AGI and $125,000 of taxable income this year. She is concerned about underpayment penalties. Because of a substantial bonus, her prior year AGI was $155,000 and her taxable income was $135,000. Based on her fact pattern, which of the following scenarios will not allow her to avoid underpayment penalties?

The estimated payments total at least 100% of the tax due for the prior year.

Which of the following statements is incorrect regarding qualifying criteria for the health insurance premium tax credit?

The insurance policy must be purchased directly from an insurance company.

Which of the following statements is not correct regarding the residential energy efficient property (REEP) credit?

The taxpayer's basis in the property is reduced by the credit. Only solar property qualifies for the credit. Credits earned but not used in the current year can be carried forward to the next year. Correct Answer All of these statements regarding the REEP credit are correct.

If an individual is liable for self-employment tax, a portion of the self-employment tax is

a for AGI deduction.

In computing AMTI, tax preference items are

added only.

Refundable tax credits

allow the excess over the taxpayer's tax liability to be paid to the taxpayer.

Harley's tentative minimum tax is computed by multiplying the AMT tax rates by her

alternative minimum tax base.

In calculating a taxpayer's AMT, adjustments for timing differences will be made for all of the following assets except for

an office building placed in service in 2015.

Current year foreign taxes paid exceed the ceiling based on U.S. tax attributable to foreign source income. These excess foreign tax credits

can be carried back one year and then carried forward ten years.

Which one of the following is a refundable credit?

earned income credit

In computing AMTI, adjustments are

either added or subtracted.

All of the following statements regarding self-employment income/tax are true except

employees who have a business in addition to their regular employment are not subject to the self-employment tax since FICA is withheld on their wages.

An individual with AGI equal to or less than $150,000 in the prior year may generally avoid penalties for underpayment of estimated tax in each of the following cases with the exception of

estimated tax is less than $1,500.

Individuals without children are eligible for the earned income credit if they meet all the following conditions except

file married filing separately.

The general business credit includes all of the following with the exception of

foreign tax credit.

In computing AMTI, all of the following must be added back except

home mortgage interest (on mortgage in effect since home was purchased).

A taxpayer will be ineligible for the earned income credit if he or she has disqualified investment income of more than $3,450 in 2017. Disqualified income includes all the following except

self-employment income.

All of the following are allowable deductions under the alternative minimum tax except

state income taxes.

Form 6251, Alternative Minimum Tax, must be filed in any of the following situations except

the earned income tax credit exceeds the tentative minimum tax.

A taxpayer at risk for AMT should consider which of the following decisions?

timing of state income tax estimated payments