Fed Tax 1 Ch 14 HW

This credit is given to encourage​ (reduce the​ after-tax cost​ of) research and development activities.

research credit

special tax rules that apply to the tax credit for rehabilitation expenditures Calculation of basis for expenditures A. For the purpose of​ depreciation, the basis of the property must be reduced by the full amount of the credit taken. B. For the purpose of​ depreciation, the basis of the property equals to the expenditures incurred for the rehabilitation of the building. C. For the purpose of​ depreciation, the basis of the property must be reduced by​ 50% of the credit taken. D. For the purpose of​ depreciation, the basis of the property must be reduced by the amount of the expenditures eligible for the credit.

A. For the purpose of​ depreciation, the basis of the property must be reduced by the full amount of the credit taken.

Vonn anticipates that his actual tax liability for the tax year will be $12,500 and that federal income taxes withheld from his salary will be $10,500. Thus, when he files his current year income tax​return, he will have a $2,000 balance due. In the previous​year, his actual federal income tax liability was $8,800 and his AGI was less than $150,000. Is Vonn required to make estimated tax payments in the current​ year? A. Vonn is not required to make tax payments. He meets a safe harbor because he had more withheld in the current year ​($10,500​) than 100​% of his previous year tax liability ​($8,800​), and his previous year AGI was less than $150,000. He will not be subject to an underpayment penalty. B. Vonn is required to make tax payments because even though he had more withheld in the current year ​($10,500​) than 100​% of his previous year tax liability ​($8,800​), his previous year AGI was more than $100,000. He will be subject to the underpayment penalty. C. Vonn is required to make tax payments because he had less withheld in the current year ​($10,500​) than his current year liability ​($12,500​), and his previous year AGI was more than $100,000. He will be subject to the underpayment penalty. D. Vonn is not required to make tax payments since he had more withheld in the current year ​($10,500​) than 110​% of his previous year tax liability ​($8,800​), and his previous year AGI was less than $100,000. He will not be subject to an underpayment penalty.

A. Vonn is not required to make tax payments. He meets a safe harbor because he had more withheld in the current year ​($10,500​) than 100​% of his previous year tax liability ​($8,800​), and his previous year AGI was less than $150,000. He will not be subject to an underpayment penalty.

An individual has increasing levels of income each year and is uncertain regarding the amount of his estimated taxable income for any given year. What tax planning strategy can be used to avoid the penalty for underpayment of estimated​ tax? A. To avoid the estimated tax underpayment​ penalty, the taxpayer should make combined estimated payments and withholdings that are equal to or exceed the required percentage of the preceding​ year's tax liability. A taxpayer must prepay 100​% of the preceding​ year's tax liability if his AGI was $150,000 or less in the previous year. If the​ taxpayer's previous year AGI exceeded $150,000​, to avoid the​ penalty, for the current​ year, the taxpayer would need to prepay 110​% of his previous year tax liability. B. To avoid the estimated tax underpayment​ penalty, the taxpayer should make combined estimated payments and withholdings that are equal to or exceed the required percentage of the preceding​ year's tax liability. The required percentage depends on the​ taxpayer's filing status for the previous tax year. C. To avoid the estimated tax underpayment​ penalty, the taxpayer should make combined estimated payments and withholdings equal to​ 90% of the preceding​ year's tax liability. D. To avoid the estimated tax underpayment​ penalty, the taxpayer should make combined estimated payments and withholdings equal to 100​% of the current​ year's tax liability.

A. To avoid the estimated tax underpayment​ penalty, the taxpayer should make combined estimated payments and withholdings that are equal to or exceed the required percentage of the preceding​ year's tax liability. A taxpayer must prepay 100​% of the preceding​ year's tax liability if his AGI was $150,000 or less in the previous year. If the​ taxpayer's previous year AGI exceeded $150,000​, to avoid the​ penalty, for the current​ year, the taxpayer would need to prepay 110​% of his previous year tax liability.

The purpose of this credit is to reduce the cost of postsecondary education for low and middle income taxpayers.

American opportunity credit

What are the underlying reasons for enactment of many of the personal tax​ credits? A. Economic policy objectives. B. Social policy objectives. C. Both economic and social policy objectives. D. Revenue raising objectives.

C. Both economic and social policy objectives.

​Tony, who is single and 58 years​ old, is considering early retirement from his salaried job. He currently has $90,000 salary and also earns $60,000 profit from a consulting business. What advice would you give Tony relative to the need to make Social Security tax payments if he retires and continues to be actively engaged as a consultant during his​ retirement? ​(Assume the current year is 2019​.) A. Tony will be required to pay FICA taxes on wages and net​ self-employment (SE) earnings ​(92.35​% × SE​ earnings). The Social Security portion of FICA taxes ​(6.2​% on wages and 12.4​% on net SE​ earnings) applies up to the $131,900 ceiling. The Medicare portion of FICA taxes ​(1.45​% on wages and 2.9​% on net SE​ earnings) applies to all earnings without a ceiling.​ Tony's net SE earnings equal $55,410 ​(92.35​% × $60,000​). If Tony continues as an​ employee, the Social Security tax will be imposed on his salary of $90,000 and on $41,900 ​($131,900 ​- $90,000​) of his net SE earnings. The Medicare tax will be imposed on all earnings. If Tony retires from his​ job, the Social Security tax will apply to all of his net SE earnings and he will receive a for AGI deduction for​ 50% of Social Security and Medicare taxes paid. B. Tony will be required to pay FICA taxes on wages and net​ self-employment (SE) earnings ​(15.3​% × SE​ earnings). The Social Security portion of FICA taxes ​(12.4​% on wages and 6.2​% on net SE​ earnings) applies up to the $132,900 ceiling. The Medicare portion of FICA taxes ​(2.9​% on wages and 1.45​% on net SE​ earnings) applies to all earnings without a ceiling.​ Tony's net SE earnings equal $7,650 ​(15.3​% × $60,000​). If Tony continues as an​ employee, the Social Security tax will be imposed on his salary of $90,000 and on $42,900 ​($132,900 ​- $90,000​) of his net SE earnings. The Medicare tax will be imposed on all earnings. If Tony retires from his​ job, the Social Security tax will apply to all of his net SE earnings and he will receive a for AGI deduction for​ 50% of Social Security and Medicare taxes paid. Your answer is not correct. C. Tony will be required to pay FICA taxes on wages and net​ self-employment (SE) earnings ​(92.35​% × SE​ earnings). The Social Security portion of FICA taxes ​(6.2​% on wages and 12.4​% on net SE​ earnings) applies up to the $132,900 ceiling. The Medicare portion of FICA taxes ​(1.45​% on wages and 2.9​% on net SE​ earnings) applies to all earnings without a ceiling.​ Tony's net SE earnings equal $55,410 ​(92.35​% × $60,000​). If Tony continues as an​ employee, the Social Security portion of FICA will be imposed on his salary of $90,000 and on $42,900 ​($132,900 ​- $90,000​) of his net SE earnings. The Medicare portion will be imposed on all earnings. If Tony retires from his​ job, the Social Security portion of FICA will be imposed on his net SE earnings and the Medicare portion will be imposed on his net SE earnings. D. If Tony continues to be​ employed, he will not be subject to the Social Security portion of the​ self-employment tax on the first $131,900 of total earnings or to the Medicare portion of the FICA tax. If he retires from his salaried​ job, Tony's consulting income will all be subject to the 15.3​% ​self-employment rate on the first $131,900 and 6.2​% on income in excess of $131,900. Tony will then receive a for AGI deduction for​ 50% of Social Security and Medicare taxes paid.

C. Tony will be required to pay FICA taxes on wages and net​ self-employment (SE) earnings ​(92.35​% × SE​ earnings). The Social Security portion of FICA taxes ​(6.2​% on wages and 12.4​% on net SE​ earnings) applies up to the $132,900 ceiling. The Medicare portion of FICA taxes ​(1.45​% on wages and 2.9​% on net SE​ earnings) applies to all earnings without a ceiling.​ Tony's net SE earnings equal $55,410 ​(92.35​% × $60,000​). If Tony continues as an​ employee, the Social Security portion of FICA will be imposed on his salary of $90,000 and on $42,900 ​($132,900 ​- $90,000​) of his net SE earnings. The Medicare portion will be imposed on all earnings. If Tony retires from his​ job, the Social Security portion of FICA will be imposed on his net SE earnings and the Medicare portion will be imposed on his net SE earnings.

What is backup​ withholding? What is its​ purpose? A. Backup withholding was implemented to prevent abusive noncompliance with tax provisions when the taxpayer fails to provide the payor with his or her tax identification number or fails to report this type of income on his or her return. B. Backup withholding provides for withholding of taxes at​ 28% from pension​ income, interest​ income, dividends, and royalty income under certain circumstances. C. Backup withholding was implemented to prevent estimated payment requirements for taxpayers who qualify for head of household filing status. D. Both A.​ & B are correct.

D. Both A.​ & B are correct.

Anna does not make quarterly estimated tax payments even though she has substantial amounts of income that are not subject to withholding. In the previous​ year, Anna's tax liability was​ $18,000 and her AGI was​ $135,000. In the current​ year, Anna's actual tax liability is​ $30,000, and​ $18,200 was withheld from her salary. If​ Anna's withholdings were only​ $15,000, would she be subject to the underpayment​ penalty? Why? If​ Anna's withholdings were only​ $15,000, then _____________________ subject to the underpayment penalty because her current year withholdings ________________________________________________________________. a1. she would be a2. she would not be b1. did not exceed 100% of her prior year tax liability or 90% of her current year liability b2. did not exceed 110% of her prior year tax liability or 90% of her current year liability b3. exceeded 100% of her prior year tax liability b4. exceeded 110% of her prior year tax liability

a1. she would be b1. did not exceed 100% of her prior year tax liability or 90% of her current year liability

Virginia is entitled to five​ allowances, but she claims only one withholding allowance on Form​ W-4. Is it permissible to claim fewer allowances than an individual is entitled​ to? _____________________ claim fewer allowances than allowed. a1. yes, Virginia may a2. no, Virginia may not

a1. yes, Virginia may

Most people are not subject to the​ self-employment tax _______________________ a. because their withholding is greater than the alternative minimum tax b. because there is a liberal exemption amount to reduce the tax base on which the self employment tax is calculated c. because they are classified as independent contractors for tax purposes d. because they are classified as employees for tax purposes.

d. because they are classified as employees for tax purposes.

This credit was enacted to reduce the cost of quality child care for parents and other individuals who must incur expenses for household and dependent care services while they are away from home at work.

dependent care credit

This credit is designed to encourage​ low-income individuals to become gainfully employed or to continue to work despite low earnings.

earned income credit

This credit is provided to reduce the effect of double taxation on foreign source income.

foreign tax credit

Deductible for AMT? State and local income taxes yes no

no

Deductible for AMT? Charitable contributions yes no

yes

Deductible for AMT? Medical expenses in excess of 10% of AGI yes no

yes

Deductible for AMT? Mortgage interest on a loan used to acquire a personal residence yes no

yes

Exempt from the federal income tax withholding​ requirements? Household Employees yes no

yes

Exempt from the federal income tax withholding​ requirements? Independent Contractors yes no

yes

Exempt from the federal income tax withholding​ requirements? Tips under $20 per month from a single employer yes no

yes

Individual AMT​ adjustments? Excess of MACRS depreciation over depreciation computed under the alternative depreciation system for personal property placed in service after 1986. yes no

yes

Individual AMT​ adjustments? Excess of MACRS depreciation over depreciation computed under the alternative depreciation system for real property placed in service after 1986 and before 1999. yes no

yes

Individual AMT​ adjustments? Itemized deductions that are allowed for regular tax purposes but not allowed in computing AMTI. yes no

yes

Tax preference items for purposes of computing the individual​ AMT? Excess depreciation for real property placed in service before 1987 Yes No

yes

special tax rules that apply to the tax credit for rehabilitation expenditures Restrictions on depreciation methods A. Depreciation of qualifying expenditures must be computed using the​ straight-line depreciation method. B. Straight-line depreciation generally must be used with respect to rehabilitation expenditures. The regular MACRS depreciation rules apply to the portion of the​ property's basis that is not eligible for the credit. C. Depreciation of qualifying expenditures must be computed using the MACRS depreciation method. D. Regular MACRS depreciation generally must be used with respect to rehabilitation expenditures. The​ straight-line depreciation rules apply to the portion of the​ property's basis that is not eligible for the credit.

A. Depreciation of qualifying expenditures must be computed using the​ straight-line depreciation method.

Why do many taxpayers intentionally overpay their tax through withholdings to obtain a tax​ refund? A. Many people overpay their taxes to avoid the risk of having to pay a​ lump-sum balance due at the filing date. Others use the system as a​ "forced savings" program. B. Many people overpay their taxes in the form of additional withholding to earn interest on their money. C. Many people overpay their taxes in the form of additional withholding because the tax law requires that taxes be overpaid if deductions are below a certain threshold. D. Many people overpay their taxes in the form of additional withholding because they claim too many allowances.

A. Many people overpay their taxes to avoid the risk of having to pay a​ lump-sum balance due at the filing date. Others use the system as a​ "forced savings" program.

Does the AMT apply if an​ individual's tax liability as computed under the AMT rules is less than his or her regular tax​ amount? A. No. B. Yes.

A. No.

special tax rules that apply to the tax credit for rehabilitation expenditures Types of eligible expenditures A. The credit applies to expenditures for the rehabilitation of older industrial and commercial buildings and certified historic structures. Expenditures must be for depreciable business or investment property. Residential real estate does not qualify unless the structure is a certified historic structure. B. The credit applies to expenditures for the rehabilitation of older industrial and commercial buildings and certified historic structures. All residential real estate is excluded. C. The credit applies to expenditures for the rehabilitation of older industrial and commercial buildings and certified historic structures without any exclusion. D. The credit applies to expenditures for the rehabilitation of any building placed in service before 1936.

A. The credit applies to expenditures for the rehabilitation of older industrial and commercial buildings and certified historic structures. Expenditures must be for depreciable business or investment property. Residential real estate does not qualify unless the structure is a certified historic structure.

Taxpayers are permitted to contribute money to qualified retirement plans and receive very favorable tax benefits. Congress has provided further incentives to contribute money to such plans by enacting the Qualified Retirement Savings Contributions Credit. Briefly describe how the credit is computed. A. The credit is computed by multiplying qualifying contributions​ (maximum $2,000 per taxpayer per​ year) by an applicable percentage between 50​% and​ 10%, depending on the​ taxpayer's adjusted gross income and filing status.​ Therefore, the maximum annual credit equals $1,000 ​($2,000 ​× 50​%). B. The credit is computed by multiplying qualifying contributions​ (maximum $2,000 per taxpayer per​ year) by an applicable percentage between​ 100% and 50​%, depending on the​ taxpayer's adjusted gross income and filing status.​ Therefore, the maximum annual credit equals $2,000 ​($2,000 ​× 100%). C. The credit is computed by multiplying qualifying contributions​ (maximum $1,000 per taxpayer per​ year) by an applicable percentage between​ 100% and 50​%, depending on the​ taxpayer's adjusted gross income and filing status.​ Therefore, the maximum annual credit equals $1,000 ​($1,000 ​× 100%). D. The credit is computed by multiplying qualifying contributions​ (maximum $1,000 per taxpayer per​ year) by an applicable percentage between 50​% and​ 10%, depending on the​ taxpayer's adjusted gross income and filing status.​ Therefore, the maximum annual credit equals $500 ​($1,000 ​× 50​%).

A. The credit is computed by multiplying qualifying contributions​ (maximum $2,000 per taxpayer per​ year) by an applicable percentage between 50​% and​ 10%, depending on the​ taxpayer's adjusted gross income and filing status.​ Therefore, the maximum annual credit equals $1,000 ​($2,000 ​× 50​%).

Discuss the difference between a refundable tax credit and a nonrefundable tax credit. Give at least one example of each type of credit. A. A refundable tax credit is a type of negative income tax. If the credit exceeds the tax​ liability, the government pays the taxpayer the excess credit. A nonrefundable tax credit resembles a direct subsidy. It may only be used to offset the​ taxpayer's tax liability.​ Therefore, if the credit exceeds the tax​ liability, the taxpayer receives no payment​ and, at​ best, can only carryback or carryforward the excess credit. The adoption credit is a refundable tax credit. The business energy tax credit is an example of a nonrefundable credits. B. A refundable tax credit resembles a direct subsidy. Because it can fully offset an income tax liability and generate a tax​ refund, it is a type of negative income tax. A nonrefundable tax credit may only be used to offset the​ taxpayer's tax liability. If the credit exceeds the tax​ liability, the taxpayer receives no refund​ and, at​ best, can only carryback or carryforward the excess credit. The earned income credit is a refundable tax credit. Dependent care credits are nonrefundable credits. C. A refundable tax credit resembles a direct subsidy. It is a type of negative income tax. If the credit is less than the tax​ liability, the government pays the taxpayer the excess credit. A nonrefundable tax credit may only be used to offset the​ taxpayer's tax liability.​ Therefore, if the credit is less than the tax​ liability, the taxpayer receives no payment​ and, at​ best, can only carryback or carryforward the excess credit. The earned income credit is a refundable tax credit. Dependent care credits and tax credits for the elderly are examples of nonrefundable credits. D. A refundable tax credit resembles a direct subsidy. It is a type of negative income tax. If the credit exceeds the tax​ liability, the government pays the taxpayer the excess credit. A nonrefundable tax credit may only be used to offset the​ taxpayer's tax liability.​ Therefore, if the credit exceeds the tax​ liability, the taxpayer receives no payment​ and, at​ best, can only carryback or carryforward the excess credit. Dependent care credits and tax credits for the elderly are refundable tax credit. The earned income credit is an example of a nonrefundable credits.

B. A refundable tax credit resembles a direct subsidy. Because it can fully offset an income tax liability and generate a tax​ refund, it is a type of negative income tax. A nonrefundable tax credit may only be used to offset the​ taxpayer's tax liability. If the credit exceeds the tax​ liability, the taxpayer receives no refund​ and, at​ best, can only carryback or carryforward the excess credit. The earned income credit is a refundable tax credit. Dependent care credits are nonrefundable credits.

Mario is a college student who had no income tax liability in the prior year and expects to have no tax liability for the current year. What are the​ cash-flow implications to Mario if the employer withholds federal income​ taxes? A. Mario would receive a bigger paycheck each period due to withholding. Since he owes no​ taxes, he would be entitled to a refund of all withholding amounts. Mario would receive a bigger paycheck and a refund at the end of the year. B. Mario would receive a smaller paycheck each period due to withholding. Since he owes no​ taxes, on filing a federal income tax​ return, he would be entitled to a refund of all withholding amounts. In​ effect, Mario would be loaning the government the withholding amount​ interest-free. C. There would not be any​ cash-flow implications to Mario. He will receive all of the money back at the end of the year when he files his tax return. Whether he receives the money in his paycheck or at the end of the​ year, he receives the same amount. D. There would not be any​ cash-flow implications to Mario. He is not exempt from taxes and owes the money.

B. Mario would receive a smaller paycheck each period due to withholding. Since he owes no​ taxes, on filing a federal income tax​ return, he would be entitled to a refund of all withholding amounts. In​ effect, Mario would be loaning the government the withholding amount​ interest-free.

Select the major differences between the American Opportunity credit and the Lifetime Learning credit. A. The LLC qualified education expenses include​ tuition, fees required for​ enrollment, course materials and room and board. The AOTC qualified education expenses include only tuition and academic​ fees, not course materials. B. The AOTC only applies during a​ student's first four years of​ post-secondary education, whereas the LLC applies to​ undergraduate, graduate, and professional education. C. The LLC only applies during a​ student's first four years of​ post-secondary education, whereas the AOTC applies to​ undergraduate, graduate, and professional education. D. The AOTC and LLC have different phaseout rules.​ Low- and​ middle- income taxpayers most likely qualify for both credits.​ However, the AOTC​ phase-out occurs at lower income levels. Because the AOTC phaseout ranges are adjusted annually for inflation​ (and LLC ranges are​ fixed), over​ time, this may decrease in importance as a disadvantage. E. The AOTC applies per student​ (maximum $2,000 per​ student) whereas the LLC applies per​ taxpayer, based on the dollars spent on qualified tuition and related expenses by the taxpayer. F. The AOTC and LLC have different phaseout rules. The LLC​ phase-out occurs at lower income levels. Because the LLC phaseout ranges are adjusted annually for inflation​ (and AOTC ranges are​ fixed) over​ time, this may decrease in importance as a disadvantage. G. The AOTC applies per student​ (maximum $2,500 per​ student) whereas the LLC applies per taxpayer​ (maximum $2,000​) H. The AOTC qualified education expenses include​ tuition, fees required for​ enrollment, course materials and room and board. The LLC qualified education expenses include only tuition and academic​ fees, not course materials.

B. The AOTC only applies during a​ student's first four years of​ post-secondary education, whereas the LLC applies to​ undergraduate, graduate, and professional education. F. The AOTC and LLC have different phaseout rules. The LLC​ phase-out occurs at lower income levels. Because the LLC phaseout ranges are adjusted annually for inflation​ (and AOTC ranges are​ fixed) over​ time, this may decrease in importance as a disadvantage. G. The AOTC applies per student​ (maximum $2,500 per​ student) whereas the LLC applies per taxpayer​ (maximum $2,000​)

Virginia is entitled to five​ allowances, but she claims only one withholding allowance on Form​ W-4. Why would an individual claim fewer​ allowances? A. An individual might claim fewer allowances because they have high​ deductions, losses, or credits. B. An individual might claim fewer allowances to decrease the amount of tax​ withheld, if they anticipate that they will receive a large refund at the end of the year. For​ example, this situation occurs for taxpayers earning both wage and nonwage income. C. An individual might claim fewer allowances to increase the amount of tax​ withheld, if they anticipate that taxes will be owed at the end of the year and they do not wish to make quarterly estimated tax payments. For​ example, this situation occurs for taxpayers earning both wage and nonwage income. D. An individual might claim fewer allowances because they are an unmarried taxpayer and qualify for head of household filing status.

C. An individual might claim fewer allowances to increase the amount of tax​ withheld, if they anticipate that taxes will be owed at the end of the year and they do not wish to make quarterly estimated tax payments. For​ example, this situation occurs for taxpayers earning both wage and nonwage income.

Why are most elderly people unable to qualify for the tax credit for the​ elderly? A. They have AGI in excess of the limitation. B. They receive Social Security benefits which exceed the ceiling limitation. C. Either​ (or both) A. and B. D. Their itemized deductions are too high.

C. Either​ (or both) A. and B.

Taxpayers are permitted to contribute money to qualified retirement plans and receive very favorable tax benefits. Congress has provided further incentives to contribute money to such plans by enacting the Qualified Retirement Savings Contributions Credit. Why did Congress enact this credit when such contributions already receive favorable tax​ treatment? A. Congress wanted to enact this credit to further encourage the population to save for retirement when the savings rate is high. B. Given the budget constraints of middle and high income​ households, Congress wanted to enact this credit to further encourage saving for retirement.​ Further, Congress acknowledged that the United States has a high savings​ rate, especially among lower and middle income households. C. Given the budget constraints of lower and middle income​ households, Congress wanted to enact this credit to further encourage saving for retirement. D. Given the low savings​ rate, Congress wanted to enact this credit to further encourage saving for retirement for high income households.

C. Given the budget constraints of lower and middle income​ households, Congress wanted to enact this credit to further encourage saving for retirement.

What are the more significant tax credit items included in the computation of the general business tax​ credit? A. The general business credit includes the rehabilitation expenditures​ credit, work opportunity​ credit, earned income​ credit, business energy​ credits, and the disabled access credit. B. The general business credit includes the rehabilitation expenditures​ credit, research​ credit, foreign tax​ credit, business energy​ credits, and the disabled access credit. C. The general business credit includes the work opportunity​ credit, the rehabilitation expenditures​ credit, credit for increased research​ activities, business energy​ credits, employer-provided child care​ credit, and the disabled access credit. D. The general business credit includes the American opportunity tax​ credit, rehabilitation expenditures​ credit, work opportunity​ credit, research​ credit, and business energy credits.

C. The general business credit includes the work opportunity​ credit, the rehabilitation expenditures​ credit, credit for increased research​ activities, business energy​ credits, employer-provided child care​ credit, and the disabled access credit.

special tax rules that apply to the tax credit for rehabilitation expenditures Potential recapture of the credit. A. The rehabilitation credit is recaptured at a rate of​ 25% per year if the property is disposed of within 5 years of the date placed in service. B. The rehabilitation credit must be recaptured proportionately in the event of an early disposition of the property​ (within 10​ years). C. The rehabilitation credit must be recaptured proportionately in the event of an early disposition of the property​ (within 5​ years). D. The rehabilitation credit is recaptured at a rate of​ 10% per year if the property is disposed of within 5 years of the date placed in service.

C. The rehabilitation credit must be recaptured proportionately in the event of an early disposition of the property​ (within 5​ years).

From a​ cash-flow perspective, why is it generally preferable to have an underpayment of tax​ (assuming no underpayment penalty is​ imposed) rather than an overpayment of​ tax? A. The IRS does not pay interest on overpayments if it refunds the overpayment within 45 days from the later of the due date of the return or its filing date. B. Overpaying has the effect of making an interest free loan to the U.S. Treasury. C. The IRS does not pay interest on overpayments if it refunds the overpayment within 60 days from the later of the due date of the return or its filing date. D. Both A and B.

D. Both A and B.

Why are most taxpayers not subject to the alternative minimum tax​ (AMT)? A. Most taxpayers do not have substantial tax preferences and AMT adjustments. B. There is a generous exemption amount to reduce the tax base on which the AMT is calculated. C. The AMT system only applies to corporations. D. Both A and B.

D. Both A and B.

Mario is a college student who had no income tax liability in the prior year and expects to have no tax liability for the current year. What steps should Mario take to avoid having amounts withheld from his summer employment​ wages? A. Mario should file​ single, claiming zero withholding allowances on Form​ W-4 to avoid having amounts withheld. B. Mario should file​ single, claiming one withholding allowance on Form​ W-4 because he should not avoid having amounts withheld from his summer employment wages. He is not exempt. C. Mario does not have to file a Form​ W-4 since he did not have any income tax liability in the prior year and expects to have no tax liability for the current year. He is automatically exempt. D. Mario should file exempt status on Form​ W-4 to avoid having amounts withheld.

D. Mario should file exempt status on Form​ W-4 to avoid having amounts withheld.

Virginia is entitled to five​ allowances, but she claims only one withholding allowance on Form​ W-4. Is it possible for Virginia to claim more than five withholding​ allowances? A. Virginia cannot claim more than five withholding allowances because the IRS imposes a limitation on the amount of withholding allowances an individual can claim. B. Virginia can claim more than five withholding allowances in a tax year if she takes the standard​ deduction, is​ married, and her spouse is employed and has earned income. C. Virginia can claim more than five withholding allowances in a tax year if she takes the standard deduction and works two jobs. D. Virginia can claim more than five withholding allowances in a tax year if she has larger than average deductible expenses​ (for example, mortgage interest expenses on a​ newly-financed house) relative to the average for a family of​ Virginia's income amount

D. Virginia can claim more than five withholding allowances in a tax year if she has larger than average deductible expenses​ (for example, mortgage interest expenses on a​ newly-financed house) relative to the average for a family of​ Virginia's income amount

Vonn anticipates that his actual tax liability for the tax year will be $12,500 and that federal income taxes withheld from his salary will be $10,500. Thus, when he files his current year income tax​return, he will have a $2,000 balance due. In the previous​year, his actual federal income tax liability was $8,800 and his AGI was less than $150,000. Will Vonn be subject to an underpayment penalty if his prior year AGI was $195,000 Why? Because his prior year AGI was more than $150,000, to avoid the underpayment penalty for the current tax year, Vonn's federal income tax prepayments (withholding plus estimated payments) must total at least _______ His current year withheld federal income tax of $10,500 is _______ than the​ minimum, so _____________________.

a. $9,680 b. greater c. no penalty is imposed

special tax rules that apply to the tax credit for rehabilitation expenditures Applicable tax credit rates Which rate applies to expenditures on structures placed in service before 1936? a. 10% b. 15% c. 20% d. 25%

a. 10%

Why did Congress impose a​ phase-out of the credit for taxpayers based on​ AGI? As with other​ phase-outs in the tax​ law, Congress​ doesn't intend this credit for a. higher income taxpayers b. lower income taxpayers c. middle income taxpayers

a. higher income taxpayers

Employees _____________________________________________ which ____________________________ by their employers. a1. pay employment taxes as part of their federal income tax return a2. pay employment taxes through withholding and in amounts b1. are determined b2. are not reported b3. must be matched

a2. pay employment taxes through withholding and in amounts b3. must be matched

Anna does not make quarterly estimated tax payments even though she has substantial amounts of income that are not subject to withholding. In the previous​ year, Anna's tax liability was​ $18,000 and her AGI was​ $135,000. In the current​ year, Anna's actual tax liability is​ $30,000, and​ $18,200 was withheld from her salary. If Anna is subject to an underpayment​ penalty, can she deduct this amount as​ interest? Explain. The underpayment penalty is based on the federal​ short-term interest rate plus​ 3%; __________________________________________________________. a. however, the penalty is not deductible as interest b. therefore, the penalty is deductible as interest

a. however, the penalty is not deductible as interest

The adoption credit is intended to assist taxpayers with the financial burden of adopting children. The adoption credit allowed is the amount of qualified adoption expenses incurred to a maximum of ______________ (2020). The credit is generally allowable in the year the _______________________. If adoption expenses are paid prior to the year in which the adoption is​ finalized, such expenses ________________________________________________________. If expenses are paid during or after the year the adoption is​ finalized, the credit is ____________________________________________________________. Finally, there is a​ phase-out of the credit based on the​ taxpayer's _______. For taxpayers with _______ above _______ (2020), the credit is ratably phased out over a $40,000 range. The credit is fully phased out when _______ reaches _______. a1. $14,300 a2. $14,080 a3. $40,000 b1. adoption is finalized b2. expenses are incurred c1. are eligible for the credit in the year they are incurred c2. are not eligible for the credit until the year the adoption is finalized d1. allowable in the year the expenses are paid or incurred d2. not allowed e1. AGI f1. AGI h1. AGI e2. salary f2. salary h2. salary e3. total income f3. total income h3. total income g1. $211,160 g2. $214,520 g3. $200,000 i1. $214,520 i2. $250,000 i3. $254,520

a1. $14,300 b1. adoption is finalized c2. are not eligible for the credit until the next yea the adoption is finalized d1. allowable in the year the expenses are paid or incurred e1. AGI f1. AGI g2. $214,520 h1. AGI i3. $254,520

Anna does not make quarterly estimated tax payments even though she has substantial amounts of income that are not subject to withholding. In the previous​ year, Anna's tax liability was​ $18,000 and her AGI was​ $135,000. In the current​ year, Anna's actual tax liability is​ $30,000, and​ $18,200 was withheld from her salary. Is Anna subject to the underpayment​ penalty? Why? _____________________ subject to the underpayment penalty because her current year withholdings _______________________________________________________________ This is because her AGI for the prior year was not more than ______________ a1. No, Anna is not a2. Yes, Anna is b1. did not equal or exceed her current year liability b2. did not exceed 100% of her prior year tax liability b3. did not exceed 110% of her prior year tax liability b4. exceed 100% of her prior year tax liability b5. exceed 110% of her prior year tax liability c1. $160,000 c2. $150,000 c3. $145,000

a1. No, Anna is not b4. exceed 100% of her prior year tax liability c2. $150,000

If an employer fails to withhold federal income taxes and FICA taxes on wages or fails to make payment to the​ IRS, what adverse tax consequences may​ result? May corporate officers or other corporate officials be held responsible for the​ underpayment? Penalties ______________ if an employer fails to withhold federal payroll tax and income tax and pay them to the IRS. Corporate​ officers, directors, and other officials ______________ be held personally liable for payment of the tax. a1. are imposed a2. are not imposed b1. may also b2. may not

a1. are imposed b1. may also

Theresa is a college professor who wants to work for a consulting firm during the summer. She will be working on special projects relating to professional development programs. What advantages might accrue to the consulting firm if the engagement is set up as a consulting arrangement rather than an employment​ contract? If the engagement is set up as a consulting arrangement rather than an employment​ contract, then the consulting firm ____________________________________________________. In addition, the consulting firm _________________________________________________________. If the compensation paid to Theresa would be the same whether she was an employee or independent consultant, the cost of Theresa's services would be ________ if she were a consultant rather than an employee. a1. will be able to avoid making matching FICA contribution for Theresa's earnings a2. will have to make matching FICA contributions for Theresa's earnings b1. will be required to withhold the employee's share of FICA tax b2. will not be required to withhold the employee's share of FICA tax c1. less c2. more c3. the same

a1. will be able to avoid making matching FICA contribution for Theresa's earnings b2. will not be required to withhold the employee's share of FICA tax c1. less

Barry is a college student who is employed as a waiter during the summer. He earns approximately​ $1,500 during the summer and estimates that he will not be required to file a tax return and will have no federal income tax liability. Last​ year, however, he made​ $6,000 and was required to file a return and pay​ $400 in taxes. Barry is unmarried and is supported by his parents. He has no dependents and does not have any other sources of income or deductions. Can Barry claim more than one exemption on Form​ W-4 (e.g., additional withholding allowances or the standard deduction​ allowance) to minimize the amount​ withheld? Explain. Barry ______________ claim more than one exemption on FORM W-4. Additional withholding allowances are only allowed if an individual has an __________________________________________________________ or tax credit. a1. may a2. may not b1. unusually large amount of additions to AGI b2. unusually large amount of deductions from AGI

a2. may not b2. unusually large amount of deductions from AGI

Barry is a college student who is employed as a waiter during the summer. He earns approximately​ $1,500 during the summer and estimates that he will not be required to file a tax return and will have no federal income tax liability. Last​ year, however, he made​ $6,000 and was required to file a return and pay​ $400 in taxes. Barry is unmarried and is supported by his parents. He has no dependents and does not have any other sources of income or deductions. Can Barry claim exempt status on Form​ W-4 for withholding​ purposes? Barry ______________ claim exempt status because ________________________________________________. a1. may a2. may not b1. he does not have any dependents b2. he is not required to file a tax return b3. he is supported by his parents b4. he was required to pay taxes last year

a2. may not b4. he was required to pay taxes last year

This credit is designed to reduce the financial burdens associated with adopting children.

adoption credit

This credit is designed to make the cost of health insurance more affordable for taxpayers with modest household incomes.

premium tax credit

This credit is an incentive to encourage energy conservation measures and the use of fuel other than petroleum.

business energy credit

special tax rules that apply to the tax credit for rehabilitation expenditures Applicable tax credit rates Which rate applies to expenditures on certified historic structures? a. 10% b. 15% c. 20% d. 25%

c. 20%

Deductible for AMT? Interest related to an investment in undeveloped land where the individual has no investment income yes no

no

Exempt from the federal income tax withholding​ requirements? Bonuses yes no

no

Exempt from the federal income tax withholding​ requirements? Commissions yes no

no

Exempt from the federal income tax withholding​ requirements? Newspaper carriers over age 18 yes no

no

Exempt from the federal income tax withholding​ requirements? Vacation Pay yes no

no

Individual AMT​ adjustments? Tax-exempt interest earned on State of Michigan bonds yes no

no

Tax preference items for purposes of computing the individual​ AMT? Appreciated portion of the value of capital gain real property contributed to charity Yes No

no

Tax preference items for purposes of computing the individual​ AMT? Net long-term capital gain Yes No

no

Tax preference items for purposes of computing the individual​ AMT? Straight-line depreciation on residential real estate acquired in 1992 Yes No

no