Income Tax Chapter

Topics: Taxation in the United States, Tax, Income tax Pages: 112 (21755 words) Published: December 9, 2014
Chapter 07
Individual Income Tax Computation and Tax Credits
 

True / False Questions
 
1.
Both the width (or range) of the tax brackets (the amount of income taxed at a particular rate) in the tax rate schedules and the range of the tax rates in the tax rate schedules (the difference between the lowest tax rate and the highest tax rate) vary by filing status.   

True    False
 
2.
The tax rate schedules are set up to tax lower levels of income at higher tax rates than higher levels of income.   
True    False
 
3.
Tax rate schedules are provided for use by (relatively) higher income taxpayers while the tax tables are provided for use by (relatively) lower income taxpayers.   
True    False
 
4.
If a married couple has one primary breadwinner, filing a joint return will likely result in a marriage penalty.   
True    False
 
5.
If both spouses of a married couple earn roughly equivalent wages, the couple is likely to pay a marriage penalty due to the nature of the tax rate schedules.   
True    False
 
6.
A marriage penalty occurs when a couple pays more taxes by filing a joint tax return than they would have paid had they filed married filing separate returns.   
True    False
 
7.
All capital gains are taxed at preferential rates. 
 
True    False
 
8.
Long-term capital gains, dividends, and taxable interest income are all taxed at preferential rates.   
True    False
 
9.
Generally, income from an active trade or business is subject to the 3.8% Medicare contribution tax.   
True    False
 
10.
In certain circumstances a child with very little income may have their income taxed at the parents' marginal tax rate.   
True    False
 
11.
The kiddie tax does not apply to children over 24 years old at the end of the tax year.   
True    False
 
12.
The alternative minimum tax system requires taxpayers to apply an alternative tax rate on the regular income tax base to determine the amount of the alternative minimum tax.   
True    False
 
13.
Regular taxable income is the starting point for determining the alternative minimum tax.   
True    False
 
14.
The alternative minimum tax is the AMT base multiplied by the AMT rate.   
True    False
 
15.
Long-term capital gains are taxed at the stated AMT rate for purposes of the alternative minimum tax.   
True    False
 
16.
Taxpayers are not allowed to deduct personal or dependency exemptions for alternative minimum tax purposes.   
True    False
 
17.
For alternative minimum tax purposes, taxpayers are required to add back the regular tax standard deduction amount for their filing status whether or not they itemized deductions for regular tax purposes.   

True    False
 
18.
For alternative minimum tax purposes, taxpayers are allowed to deduct state income taxes but are not allowed to deduct charitable contributions.   
True    False
 
19.
The AMT exemption amount is phased-out for high income taxpayers.   
True    False
 
20.
All else equal, a reduction in regular income tax rates would require more taxpayers to pay the alternative minimum tax.   
True    False
 
21.
Due to the alternative minimum tax rate structure, timing tax planning strategies are not effective under the alternative minimum tax system.   
True    False
 
22.
Employees must pay both Social Security tax and Medicare tax on all of their wages no matter the amount of their wages.   
True    False
 
23.
For married couples, the Social Security wage base limitation applies separately to each spouse.   
True    False
 
24.
For married couples, the Medicare tax is based on the couple's combined wages.   
True    False
 
25.
Alton reported net income from his sole proprietorship of $90,000. To determine his self employment tax, he would multiply $90,000 by the self-employment tax rate.   
True    False
 
26.
Employee status is always better than independent contractor status for a taxpayer because the employee...
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