Individual Income Tax Computation and Tax Credits
True / False Questions
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.
The tax rate schedules are set up to tax lower levels of income at higher tax rates than higher levels of income.
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.
If a married couple has one primary breadwinner, filing a joint return will likely result in a marriage penalty.
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.
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.
All capital gains are taxed at preferential rates.
Long-term capital gains, dividends, and taxable interest income are all taxed at preferential rates.
Generally, income from an active trade or business is subject to the 3.8% Medicare contribution tax.
In certain circumstances a child with very little income may have their income taxed at the parents' marginal tax rate.
The kiddie tax does not apply to children over 24 years old at the end of the tax year.
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.
Regular taxable income is the starting point for determining the alternative minimum tax.
The alternative minimum tax is the AMT base multiplied by the AMT rate.
Long-term capital gains are taxed at the stated AMT rate for purposes of the alternative minimum tax.
Taxpayers are not allowed to deduct personal or dependency exemptions for alternative minimum tax purposes.
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.
For alternative minimum tax purposes, taxpayers are allowed to deduct state income taxes but are not allowed to deduct charitable contributions.
The AMT exemption amount is phased-out for high income taxpayers.
All else equal, a reduction in regular income tax rates would require more taxpayers to pay the alternative minimum tax.
Due to the alternative minimum tax rate structure, timing tax planning strategies are not effective under the alternative minimum tax system.
Employees must pay both Social Security tax and Medicare tax on all of their wages no matter the amount of their wages.
For married couples, the Social Security wage base limitation applies separately to each spouse.
For married couples, the Medicare tax is based on the couple's combined wages.
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.
Employee status is always better than independent contractor status for a taxpayer because the employee...
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