ACC250 Chapter 7

Question 1

A tax on a broader tax base than the base for the ‘regular’ tax; the additional tax paid when the tentative minimum tax (based on the alternative minimum tax base) exceeds the regular tax (based on the regular tax base). This is designed to require taxpayers to pay some minimum level of tax even when they have low or no regular taxable income as a result of certain tax breaks in the tax code.

Answer 1

ALTERNATIVE MINIMUM TAX (AMT)

Question 2

Adjustments (positive or negative) to regular taxable income to arrive at the alternative minimum tax base.

Answer 2

ALTERNATIVE MINIMUM TAX ADJUSTMENTS

Question 3

Alternative minimum taxable income minus the alternative minimum tax exemption.

Answer 3

ALTERNATIVE MINIMUM TAX BASE

Question 4

A deduction to determine the alternative minimum tax base that is phased out based on alternative minimum taxable income.

Answer 4

ALTERNATIVE MINIMUM TAX EXEMPTION

Question 5

A secondary or parallel tax system calculated on an alternative tax base that more closely reflects economic income than the regular income tax base. The system was designed to ensure that taxpayers generating economic income pay some minimum amount of income tax each year.

Answer 5

ALTERNATIVE MINIMUM TAX SYSTEM

Question 6

Nonrefundable credits designed to provide incentives for taxpayers to hire certain types of individuals or to participate in certain business activities.

Answer 6

BUSINESS TAX CREDITS

Question 7

Claimed for each qualifying child ($1,000) under the age of 17 at the end of the year and who is claimed as taxpayer’s dependent.

Answer 7

CHILD TAX CREDITS

Question 8

A refundable credit designed to help offset the effect of employment taxes on compensation paid to low-income taxpayers and to encourage lower income taxpayers to seek employment

Answer 8

EARNED INCOME CREDIT

Question 9

A person who is hired to provide services to a company on a regular basis in exchange for compensation and who does not provide these services as part of an independent business.

Answer 9

EMPLOYEE

Question 10

Quarterly tax payments that a taxpayer makes to the government if the tax withholding is insufficient to meet the taxpayer’s tax liability.

Answer 10

ESTIMATED TAX PAYMENTS

Question 11

The quarterly interest rate used to determine the interest charged for tax underpayments (federal short-term rate plus 3%).

Answer 11

FEDERAL SHORT-TERM INTEREST RATE

Question 12

Denotes both the Social Security & Medicare taxes upon earned income. For self-employed taxpayers, it is synonymous with self-employment tax.

Answer 12

FICA TAXES

Question 13

A person who provides services to another entity, usually under terms specified in a contract. They have more control over how and when to do the work than does an employee.

Answer 13

INDEPENDENT CONTRACTOR

Question 14

A tax imposed at the parent’s marginal rate on a child’s unearned income.

Answer 14

KIDDIE TAX

Question 15

A penalty assessed if a taxpayer does not file a tax return by the required date (the original due date plus extension).

Answer 15

LATE FILING PENALTY

Question 16

Imposed when a taxpayer fails to pay the entire balance of tax owed by the original due date of the tax return.

Answer 16

LATE PAYMENT PENALTY

Question 17

The tax rate that applies to the next additional increment of a taxpayer’s taxable income (or to deductions).

Answer 17

MARGINAL TAX RATE

Question 18

The tax savings married couples receive by filing a joint return relative to the tax they would have paid had they each filed as single taxpayers. This typically occurs when one spouse is either not working or earns significantly less than the other spouse.

Answer 18

MARRIAGE BENEFIT

Question 19

The extra tax cost a married couple pays by filing a joint return relative to what they would have paid had they each filed as single taxpayers. This typically occurs when both spouses earn approximately the same amount of income.

Answer 19

MARRIAGE PENALTY

Question 20

This tax helps pay medical costs for qualifying individuals.

Answer 20

MEDICARE TAX

Question 21

Credit available in certain situations for the alternative minimum tax paid. It can be used only when the regular tax exceeds the tentative minimum tax.

Answer 21

MINIMUM TAX CREDIT

Question 22

The amount of earnings subject to self-employment income taxes. The amount is 92.35% of the net income from a taxpayer’s Schedule C.

Answer 22

NET EARNINGS FROM SELF-EMPLOYMENT

Question 23

A 3.8% tax on the lesser of (a) net investment income or (b) the excess of modified adjusted gross income over $250,000 for married-joint filers and surviving spouses, $125,000 for married-separate filers, and $200,000 for other taxpayers.

Answer 23

NET INVESTMENT INCOME TAX

Question 24

Unearned income in excess of a specified threshold amount of a child under the age of 19 or under the age of 24 if a full-time student.

Answer 24

NET UNEARNED INCOME

Question 25

Tax credits that reduce a taxpayer's gross tax liability but are limited to the amount of gross tax liability. Any credit not used in the current year is lost.

Answer 25

NONREFUNDABLE CREDIT

Question 26

Tax rates lower than the tax rate applied to ordinary income.

Answer 26

PREFERENTIAL TAX RATE

Question 27

Income taxed at a preferential rate such as long-term capital gains and qualified dividends.

Answer 27

PREFERENTIALLY TAXED INCOME

Question 28

Provision of the tax law that reduces or eliminates a taxpayer's liability under the law if the taxpayer meets certain requirements.

Answer 28

SAFE-HARBOR PROVISIONS

Question 29

A schedule on which a taxpayer reports the income and deductions for a sole-proprietorship.

Answer 29

SCHEDULE C

Question 30

SS and Medicare taxes paid by the self-employed on a taxpayer's net earnings from self-employment.

Answer 30

SELF-EMPLOYMENT TAXES

Question 31

Tax intended to provide basic pension coverage for the retired and disabled.

Answer 31

SOCIAL SECURITY TAX

Question 32

A range of taxable income taxed at a specified rate.

Answer 32

TAX BRACKET

Question 33

Items that directly reduce a taxpayer's tax liability.

Answer 33

TAX CREDITS

Question 34

A schedule of progressive tax rates and the income ranges to which the rates apply that a taxpayer may use to compute her gross tax liability.

Answer 34

TAX RATE SCHEDULE

Question 35

IRS-provided tables that specify the federal income tax liability for individuals with taxable income within a specific range. The tables differ by filing status and reflect tax rates that increase with taxable income.

Answer 35

TAX TABLES

Question 36

The tax on the AMT tax base under the alternative minimum tax systems.

Answer 36

TENTATIVE MINIMUM TAX

Question 37

The penalty that applies when taxpayers fail to adequately prepay their tax liability. This penalty is determined by multiplying the federal short-term interest rate plus three percentage points by the amount of tax underpayment per quarter.

Answer 37

UNDERPAYMENT PENALTY

Question 38

Taxes collected and remitted to the government by an employer from an employee's wages.

Answer 38

WITHHOLDING