ch 7 tax problems

Discussion
Questions

1. [LO 1] What is a tax
bracket? What is the relationship
between filing status and the width of the tax brackets in the tax rate
schedule?
2. [LO 1] In 2014, for a taxpayer with $50,000 of
taxable income, without doing any actual computations, which filing status do
you expect to provide the lowest tax liability? Which filing status provides the highest tax
liability?

3.
[LO 1]
What is the tax marriage penalty and when does it apply? Under what circumstances would a couple
experience a tax marriage benefit?

4.
[LO 1]
Once they’ve computed their taxable income, how do taxpayers determine
their regular tax liability? What
additional steps must taxpayers take to compute their tax liability when they
have preferentially taxed income?

5.
[LO 1]
{Research} Are there circumstances in which preferentially taxed income
(long-term capital gains and qualified dividends) is taxed at the same rate as
ordinary income? Explain.

6.
[LO 1]
Augustana received $10,000 of qualified dividends this year. Under what circumstances would all $10,000 be
taxed at the same rate? Under what
circumstances might the entire $10,000 of income not be taxed at the same rate?

7.
[LO 1] What is the difference between
earned and unearned income?

8.
[LO 1] Does the kiddie tax eliminate
the tax benefits gained by a family when parents transfer income-producing
assets to children? Explain.
9.
[LO 1]
Does the kiddie tax apply to all children no matter their age? Explain.

10.
[LO 1] What is the kiddie tax and on whose
tax return is the kiddie tax liability reported? Explain.

11.
[LO 1] Lauren is 17 years old. She reports earned income of $3,000 and
unearned income of $2,100. Is she likely
subject to the kiddie tax? Explain.
12.
[LO 2] In very general terms, how is the
alternative minimum tax system different from the regular income tax system? How is it similar?
13.
[LO 2] Describe, in general terms, why Congress
implemented the AMT.

14.
[LO 2] Do taxpayers always add back the
standard deduction when computing alternative minimum taxable income? Explain.

15. [LO 2]
The starting point for computing alternative minimum taxable income is
regular taxable income. What are some of
the plus adjustments, plus or minus adjustments, and minus adjustments to
regular taxable income to compute alternative minimum taxable income?

16.
[LO 2]. Describe what the AMT exemption
is and who is and isn’t allowed to deduct the exemption. How is it similar to the standard deduction
and how is it dissimilar?
17.
[LO 1, 2]
How do the AMT tax rates compare to the regular income tax rates?

18.
[LO 2].
Is it possible for a taxpayer who pays AMT to have a marginal tax rate
higher than the stated AMT rate?
Explain.

19. [[LO 2] What is the difference between the
tentative minimum tax (TMT) and the AMT?

20. [LO 2]
{Planning} Lee is single and he runs his own business. He uses the cash method of accounting to
determine his business income. Near the
end of the year, Lee performed work that he needs to bill a client for. The value of his services is $5,000. Lee figures that if he immediately takes the
time to put the bill together and send it out, the client will pay him before
year-end. However, if he doesn’t send
out the bill for one week, he won’t receive the client’s payment until the
beginning of next year. Lee expects that
he will owe AMT this year and that his AMT base will be around $200,000 before
counting any of the additional business income.
Further, Lee anticipates that he will not owe AMT next year. He anticipates his regular taxable income
next year will be in the $200,000 range.
Would you advise Lee to immediately bill his client or to wait? What factors would you consider in making
your recommendation?

21.
[LO 3]
Are an employee’s entire wages subject to the FICA tax? Explain.

22.
[LO 3] Bobbie works as an employee for Altron
Corp. for the first half of the year and for Betel Inc. for rest of the year.
She is relatively well paid. What FICA tax issues is she likely to
encounter? What FICA tax issues do Altron
Corp. and Betel Inc. need to consider?
23. [LO
3] Compare and contrast an employee’s
FICA tax payment responsibilities with those of a self-employed taxpayer.