Chapter 8

Question 1

What is Net Investment Income Tax (NIIT)?

Answer 1

Higher income taxpayers are required to pay a 3.8% tax on NII.

Question 2

How do you choose the amount of additional NIIT that is imposed?

Answer 2

the LESSOR of:
(1) NII
(2) Excess of Modified AGI OVER
$250,000 - MFJ & QSS
$125,000 - MFS
$200,000 - all others

Question 3

What are examples of Net Investment Income (NII)?

Answer 3

interest, dividends, annuities, royalties, rents, net gain from disposing of property

Question 4

What are the 2 primary tax differences between self-employed and employees?

Answer 4

(1) the amount of FICA taxes payable
(2) the deductibility of busa expenses

Question 5

Employees who incur unreimbursed busa expenses relating to their employment can deduct these expenses.

Answer 5

FALSE

Question 6

What is the Social Security tax rate and what is its base?

Answer 6

12.4% with a tax base of $168,600

Question 7

What is the Medicare tax rate and what is its base?

Answer 7

2.9% and it has NO tax base

Question 8

What percentage is the Additional Medicare tax?

Answer 8

0.9%

Question 9

What is the tax base on the Additional Medicare tax?

Answer 9

applies on the tax base in EXCESS of:
$200,000 - S,HOH,QSS
$125,000 - MFS
$250,000 - MFJ

Question 10

The EMPLOYER doe not have to pay any portion of this additional Medicare tax.

Answer 10

TRUE

Question 11

Do self-employed taxpayers have to pay the ENTIRE FICA burden?

Answer 11

YES

Question 12

What are the steps to calculating SE Tax?

Answer 12

(1) Compute the taxpayer’s NI
(2) NESE
(3) Compute SS Tax
(4) Compute Medicare Tax
(5) Compute the additional Medicare tax, if applicable

Question 13

If net earnings from self-employment is less than ____, the taxpayer is NOT subject to SE tax.

Answer 13

$400

Question 14

What is NESE?

Answer 14

Net Earnings from SE
NI (from sched C) x 92.35%

Question 15

When does the IRS stipulate that an employer/employee relationship exists?

Answer 15

When the party for who services are performed has the right to direct or control the individual performing the services

Question 16

What are some factors suggesting independent contractor rather tan employee?

Answer 16

• set your own working hours
• work for more than one firm
• work without frequent oversight
• realize either a profit/loss from the activities

Question 17

What are the 5 types of tax credits covered in this chapter?

Answer 17

(1) Child Tax Credit
(2) Child & Dependent Care Credit
(3) American Opportunity Credit
(4) Lifetime Learning Credit
(5) Earned Income Credit

Question 18

What is the amount of the CTC a taxpayer can receive?

Answer 18

$2,000 for a QC <17 years old
$500 for each other QR=D

Question 19

What is the amount of the phase out for CTC?

Answer 19

$50 for each $1,000 for which AGI exceeds:
$400,000 - MFJ
$200,000 - MFS, HOH, S

Question 20

What is the purpose of the C&DCC?

Answer 20

to help taxpayers pay the cost of providing care for their QD to allow taxpayers to work

Question 21

Is C&DCC a refundable credit?

Answer 21

NO

Question 22

Married taxpayers must file a joint return to use C&DCC.

Answer 22

TRUE

Question 23

What is a QD under C&DCC?

Answer 23

dependent under the age of 13 or a disabled dependent

Question 24

Care can be provided outside or inside the home under C&DCC?

Answer 24

TRUE

Question 25

What is the formula for the credit amount (C&DCC)?

Answer 25

"eligible care cost" x applicable %

Question 26

What is the Eligible Care Cost amount?

Answer 26

the LESSOR of: (1) actual dependent care costs (2) $3,000 for 1 QD; $6,000 for >/=2 QD (3) amount of earned income (if using MFJ, use the income of the "lesser-earning" spouse

Question 27

MFS are eligible for the AOC?

Answer 27

FALSE

Question 28

What are eligible expenses under the AOC?

Answer 28

- tuition - required fees - required book & other materials (NOT room and board)

Question 29

The AOC is allowed on a per _____ _____.

Answer 29

per student basis (this includes the taxpayer, spouse, taxpayer's dependents)

Question 30

How do you calculate the AOC?

Answer 30

- 100% - first $2,000 eligible exp's - 25% - next $2,000 eligible exp's MAX credit: $2,500

Question 31

What is the phase-out for AOC?

Answer 31

$80,000 - $90,000 - S, HOH $160,000 - $180,000 - MFJ

Question 32

Is the AOC refundable?

Answer 32

YES, 40% of the credit is refundable (so up to $1,000)

Question 33

Can MFS be eligible for the LLC?

Answer 33

NO

Question 34

What are eligible expenses under the LLC?

Answer 34

- tuition - required fees (NOT books, room/board)

Question 35

How do you calculate LLC?

Answer 35

20% of up to $10,000 eligible expenses (MAX of $2,000)

Question 36

The LLC is allowed on a per _____ _____.

Answer 36

per tax return basis (this includes the taxpayer, spouse, taxpayer's dependents)

Question 37

What is the phase-out for LLC?

Answer 37

$80,000 - $90,000 - S, HOH $160,000 - $180,000 - MFJ

Question 38

Is the LLC a refundable credit?

Answer 38

NO

Question 39

What is the Earned Income Credit (EIC)?

Answer 39

Intended to encourage economically disadvantaged individuals to become contributing members of the workforce

Question 40

The EIC is refundable.

Answer 40

TRUE

Question 41

The EIC is available for individuals who have EI from the year from being an employee or self-employed.

Answer 41

TRUE

Question 42

Taxpayers with _______ income in EXCESS of _____ are NOT eligible for EI credit.

Answer 42

investment; $11,600

Question 43

MFS taxpayers are eligible for Earned Income credit.

Answer 43

FALSE

Question 44

What is the formula for EIC?

Answer 44

applicable % x EI

Question 45

What is the EIC criteria for taxpayers with no children?

Answer 45

they must be ages 25-64