1 Which of the following is true of the alternative minimum tax?
The alternative minimum tax is designed to insure that high income taxpayers do not pay excessive amounts of income tax
For 2005, the alternative minimum tax rate ranges between 20 percent and 30 percent, depending on the taxpayer's income
The amount of a taxpayer's state income tax refund may be a negative adjustment for the purpose of computing the alternative minimum tax
All tax-exempt interest is a tax preference item for the alternative minimum tax
All statements are true
2 A parent may elect to include a child's income in the parent's return if:
The child is under age 14
The child's income is only from interest and dividend distributions
The child's gross income is more than the standard deduction or investment expense allowed for the current tax year and less than the standard deduction amount for single filing status for the current tax year.
All are correct.
3 Clark, a widower, maintains a household for himself and his two dependent preschool children. For the current tax year, Clark earned a salary of $36,000. He paid $3,500 to a housekeeper to care for his children in his home, and also paid $1,500 to a nursery school for child care. He had no other income or expenses during the current tax year. How much can Clark claim as a child care credit in the current tax year?
$360
$840
$1,200
$1,440
4 Which of the following itemized deductions may not be deducted in computing the individual alternative minimum tax?
Qualified home mortgage interest
State income taxes
Medical expenses (limited to 10 percent of AGI)
Charitable deductions
All are correct.
5 H and W are married taxpayers living in Louisiana. H earns wages of $40,000 and has a $5,000 of dividend income from separate property. H and W have interest income from community property of $10,000. If H and W file separate income tax returns, what amount of income must be included on H's separate tax return?
$50,000
$30,000
$27,500
$25,000
6 Which of the following is not a true statement regarding community property law?
For a married couple living in California, income derived from separate property is taxable to the owner of the property
For a married couple living in Texas, income derived from separate property produces community income
In all community property states, the salary of married spouses is allocated one-half to each spouse
Colorado, Ohio, and Florida are community property states
Property acquired before marriage in a community property state continues to be separate property
7 Taxpayers are allowed two tax breaks for adoption expenses. They are allowed:
Qualified Expenses Paid personally Paid by employer
a. Credit Credit
b. Exclusion Credit
c. Exclusion Exclusion
d. Credit Exclusion
Credit Credit
Exclusion Credit
Exclusion Exclusion
Credit Exclusion
8 In the case of the adoption of a child who is not a U. S. citizen or resident of the U.S., the credit for qualified adoption expenses is available:
In the first year the expenses are paid
Each year expenses are paid
In the last year expenses are paid
In the year the adoption becomes final
9 Which of the following payments does not qualify as a child care expense for purposes of the child and dependent care credit?
Payments to a housekeeper who also babysits the child
Payments to the taxpayer's dependent brother (16 years old) for daytime babysitting
Payments to a day care center
Payments to the taxpayer's sister (21 years old) for daytime babysitting
All of the above qualify for the child and dependent care credit.
10 In the current tax year Alex paid $600 to Rita, his ex-wife, for child support. Under the terms of the divorce decree, Alex claims the dependency exemption for his five-year-old son, William, who lived with Rita for the entire year. In the current tax year, Alex has income from wages of $16,000, adjusted gross income of $18,000, and tax liability of $1,300 before the earned income credit. What is the amount of Alex's earned income credit for the current tax year?
$0
$2078
$1,300
$2,395
None are correct.
11 Hal is enrolled for one class at a local community college; tuition cost him $250. Hal can take a lifetime learning credit of:
$-0-
$50
$100
$150
$250
12 Taxpayer Q has net taxable income of $30,000 from Country Y which imposes a 40 percent income tax. Taxpayer Q has net taxable income from U.S. sources of $120,000, and U.S. tax liability before the foreign tax credit of $41,750. What is the amount of Q's foreign tax credit?
$2,400
$8,350
$12,000
$30,000
None of the above
13 Which of the following is not an adjustment or tax preference item for purposes of the individual alternative minimum tax?
State income tax refunds
Certain passive losses
Miscellaneous itemized deductions
Cash charitable contributions
All are adjustment or tax preference items for AMT
14 The earned income credit:
Must be calculated on adjusted gross income as well as earned income in some cases
Cannot exceed the amount of the tax liability
Is available only if the taxpayer has qualifying children
Is available to married taxpayers who file separate returns
15 The child and dependent care provisions:
Apply to children under age 15
Are available only to single parents
Are available for spouses incapable of self-care
Are allowed only for taxpayers earning less that $43,000
16 Curly and Rita are married, file a joint return, and have two dependent children, ages 11 and 13. Their combined income is $116,000. By how much is their child credit reduced in the current tax year?
$600
$300
$-0-
$900
$1,200
17 Assuming they all meet the income requirements, which of the following taxpayers qualify for the earned income credit in the current tax year?
A single taxpayer who waited on tables for 3 months of the tax year and is claimed as a dependent by her mother.
A single taxpayer who is self-employed and has a dependent child
A married taxpayer who files a separate tax return and has a dependent child.
All of the above qualify for the earned income tax credit.
None of the above qualify for the earned income tax credit.
18 Glen and Mary have two children, Chad (12 years old) and Linda (8 years old). For the current tax year, Chad has $4,000 in net unearned income and Linda has net unearned income of $1,000. If the total parental tax for the current tax year is $1,400, how would the tax be allocated between Chad and Linda?
$1,400 to Chad and $0 to Linda
$933 to Chad and $467 to Linda
$1,120 to Chad and $280 to Linda
$700 to Chad and $700 to Linda
19 A tax credit is allowed for qualified adoption expenses paid by taxpayers
And an additional credit is allowed for qualified adoption expenses paid for by taxpayers employers
And an income exclusion is allowed for qualified adoption expenses paid for by taxpayers employers
And is available each year qualifying expenses are incurred
And is not subject to a phase-out based on adjusted gross income
20 Robert and Mary file a joint tax return for the current tax year, with adjusted gross income of $33,000. Robert and Mary earned $20,000 and $12,000 respectively, during the current tax year. In order for mary to be gainfully employed, they pay the following employment-related expenses for their four-year-old son, John: Union Day Care Center $1,500; Wilma, baby-sitter (Robert's mother) $1,000. What is the amount of the child and dependent care credit they should report on their tax return for the current tax year?
$390
$260
$650
$625
None are correct.
21 Which of the following is true of the alternative minimum tax?
The alternative minimum tax is designed to insure that high income taxpayers do not pay excessive amounts of income tax
For the current tax year, the alternative minimum tax rate ranges between 20 percent and 30 percent, depending on the taxpayer's income
The amount of a taxpayer's state income tax refund may be a negative adjustment for the purpose of computing the alternative minimum tax
All tax-exempt interest is a tax preference item for the alternative minimum tax
All statements are true
22 The individual alternative minimum tax rate for the current tax year is 26 percent on the first $170,000 of income and 28 percent on income above $170,000.
True
False
23 The foreign tax credit applies only to foreign corporations.
True
False
24 For the current tax year, the maximum amount of expenses that qualify for the child and dependent care credit is the same for three dependents as it is for two dependents.
True
False
25 In all community property states, income from community property is community income.
True
False
26 Earned Income Credit will reduce the tax liability dollar for dollar and is a refundable credit.
True
False
27 Child Tax Credit will reduce the tax liability dollar for dollar and is a refundable credit.
True
False
28 Unearned income of a 16-year-old child may be taxed at his or her parents' income tax rate if that is the only income of the child.
True
False
29 The individual alternative minimum tax liability may not exceed the regular tax liability of the taxpayer.
True
False
30 Married taxpayers must file a joint tax return to claim the child and dependent care credit.
True
False
31 Net unearned income of certain minor children is taxed at their parents' tax rates.
True
False
32 A credit of 24 offers greater tax relief than a deduction of $24.
True
False
33 Amounts paid to a relative generally do not qualify as child care expenses.
True
False
34 If the net unearned income of a minor child is to be taxed at the parents' tax rate, the parents may elect, under certain conditions, to include the child's gross income on their tax return.
True
False
35 Salary earned by minors may be taxed at their parents' tax rate.
True
False
36 The total expenses that can be taken as a credit for all tax years for adoption of a child without "special needs" is $6,000.
True
False
37 Nevada is a community property state.
True
False
38 The alternative minimum tax must be paid only if it exceeds a taxpayer's regular tax liability.
True
False
39 A taxpayer with earned income of $50,000 is not eligible to claim the credit for child and dependent care expenses.
True
False
40 The use of the earned income credit could result in a taxpayer receiving a refund even though he or she has not paid any taxes.
True
False