Federal Income Tax Chapter 14

The child and dependent care credit is available to any parent who pays for child care for a child under age 13.

False

To claim the Lifetime Learning​ Credit, a student must take at least ones−half of a full−time course load during the year.

False

Joan earns​ $119,900 in her job as a​ physician's assistant. She also has her own business selling cosmetics. This business generated​ $15,000 of earnings. What is​ Joan's self−employment tax for​ 2019?

$2,014 Find tax base: For Social Security Tax, the tax base equals the lesser of 1.) the net earnings from self-employment OR 2.) the Social Security tax ceiling reduced by the individuals earnings as an employee. 15,000 x 0.9235 = $13,852.50 $132,900 - $119,900= $13,000 The lesser of the two is the tax base for Social Security. 13,000 x 0.124 = $1,612 Medicare always uses the net earnings from self-employment 13,852.5 x 0.029 = $401.72 $1,612 + $401.72 = $2013.72, rounded up to $2014.

A larger work opportunity credit is available for employers who hire any veteran of the U.S. military.

False

A self−employed individual has earnings from his business of​$300,000 in 2019. For the earnings in excess of​ $132,900, he will only have to pay the​ 2.9% Medicare Tax.

False

A​ taxpayer's tentative minimum tax exceeds his net income tax so he will be paying the alternative minimum tax this year. The taxpayer has a sole proprietorship through which he has earned general business credits. The taxpayer can reduce his AMT to the extent of his general business credits.

False Only the foreign tax credit and nonrefundable personal credits are allowed to reduce AMT.

Self−employed individuals are subject to the self−employment tax if their net earnings are more than​$600.

False. Self−employed individuals are subject to the self−employment tax if their net earnings are more than​ $400.

Why are most individuals not subject to the​ self-employment tax?

Most people are not subject to the​ self-employment tax because they are classified as employees for tax purposes. Employees pay employment taxes through withholding and in amounts which must be matched by their employers.

If an individual is classified as an​ employee, the employer is required to withhold the​ employee's share of the FICA tax and to provide a matching amount.

True

The foreign tax credit is equal to the smaller of foreign taxes paid or accrued in the tax year or the portion of the U.S. income tax liability attributable to the income earned in all foreign countries.

True

When a husband and wife file a joint return and both have self−employment ​income, the self−employment tax must be computed separately.

True

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

a for AGI deduction

Refundable tax credits

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

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 2019 is

$7,771

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

Arthur and Ariel are married and file a joint return in 2019. Arthur is a partner in a public accounting firm. His share of the​ partnership's income in the current year is $42,000​, and he receives guaranteed payments of $45,000. Ariel receives wages of $72,000 from a large corporation. What is each​ taxpayer's self-employment tax​ amount? (Hint: Guaranteed payments received from a partnership are considered​ self-employment income.)

Arthur SE tax for OASDI $9,963 SE tax for HI $2,330 Total SE tax $12,293 Ariel SE tax for OASDI $0 SE tax for HI $0 Total SE tax $0

Taxpayers with income below phase−out amounts are allowed a child credit of​ $2,000 for each qualifying child under age 19 or under age 24 if a full−time student.

False

Addison has wages of $114,000 and net income from a small unincorporated business of $40,000 for 2019. Category: Rate, Dollar Limit OASDI: 12.4%, $132,900 Medicare: 2.9%, First $200,000 of self-employment income ($250,000 combined self employment income for joint returns) Medicare, 3.8%, Self-employment income greater than $200,000 ($250,000 for joint returns) What is the amount of Addison's self-employment (SE) tax and deduction for AGI for her SE​ tax?

SE tax for OASDI $0 SE tax for HI $1,071 Total SE Tax $1,071 Addison's deduction for AGI for her SE tax is $536 SE Base $40,000 * 0.9235 = $36,940 $132,900 - $141,000 = ($8,100) The lesser of the two is the tax base for Social Security: $36,940 SE tax for OASDI = $36,940 * 0 because the wages paid to the ceiling of $132,900 SE tax for HI = $36,940 * 0.029 = $1,071.26 rounded down to $1071 SE Total = $0 + $1,071 = $1,071 Self employed individuals are entitled to deduct - for AGI - 50% of the employer portion of their SE tax: $1,071 x 0.50 = $536

Addison has wages of $85,000 and net income from a small unincorporated business of $40,000 for 2019. Category: Rate, Dollar Limit OASDI: 12.4%, $132,900 Medicare: 2.9%, First $200,000 of self-employment income ($250,000 combined self employment income for joint returns) Medicare, 3.8%, Self-employment income greater than $200,000 ($250,0term-600 for joint returns) What is the amount of Addison's self-employment (SE) tax and deduction for AGI for her SE​ tax?

SE tax for OASDI $4,581 SE tax for HI $1,071 Total SE Tax $5,652 Addison's deduction for AGI for her SE tax is $2,826 SE Base $40,000 * 0.9235 = $36,940 $132,900 - $85,000 = $47,900 The lesser of the two is the tax base for Social Security: $36,940 SE tax for OASDI = $36,940 * 0.124 = $4,580.56 rounded up to $4,581. SE tax for HI = $36,940 * 0.029 = $1,071.26 rounded down to $1071 SE Total = $4,581 + $1071 = $5,652 Self employed individuals are entitled to deduct - for AGI - 50% of the employer portion of their SE tax: $5,652 x 0.50 = $2,826

Nonrefundable credits may offset tax liability but may not result in additional payments to the taxpayer.

True

All of the following are self−employment income except A. distributive share of partnership income from a partnership operating a business. B. dividends received by a corporate shareholder. Your answer is correct. C. fees received for serving as a director of a corporation. D. net income of a sole proprietorship.

dividends received by a corporate shareholder.