Tax Chapter 8
Showing posts with label Tax Chapter 8. Show all posts
Showing posts with label Tax Chapter 8. Show all posts

What is the underpayment penalty rate that taxpayers pay when they underpay their estimated taxes?

What is the underpayment penalty rate that taxpayers pay when they underpay their estimated taxes?



A. Federal short-term interest rate.


B. Federal short-term interest rate plus three percentage points.


C. Federal long-term interest rate plus six percentage points.


D. Zero. The government does not pay interest on overpayments.


Answer: B. Federal short-term interest rate plus three percentage points.

Which of the following statements regarding late filing penalties is true?

Which of the following statements regarding late filing penalties is true?



A. If a taxpayer fails to file a tax return, the late filing penalty will continue to grow until the taxpayer files the tax return.


B. The amount of the late filing penalty is the same for both fraudulent failure to file and non fraudulent failure to file.


C. Taxpayers who owe no tax as of the due date of their tax returns are not subject to late filing penalties even if they file late.


D. None of these.


Answer: C. Taxpayers who owe no tax as of the due date of their tax returns are not subject to late filing penalties even if they file late.

Which of the following statements regarding late filing penalties and/or late payment penalties is true?

Which of the following statements regarding late filing penalties and/or late payment penalties is true?



A. An extension of time to file the tax return protects a taxpayer from late payment penalties as long as the tax is paid by the extended due date of the return.


B. The penalty rate for late filing penalties is less than the penalty rate for late payment penalties.


C. If a taxpayer has not paid the full tax liability by the original due date of the return and the taxpayer has not filed a tax return by the due date of the return, the maximum late filing and late payment penalty will be no greater than the late filing penalty by itself.


D. None of these


Answer: C. If a taxpayer has not paid the full tax liability by the original due date of the return and the taxpayer has not filed a tax return by the due date of the return, the maximum late filing and late payment penalty will be no greater than the late filing penalty by itself.


Taxpayers are not required to file a tax return unless their gross income passes a certain threshold. This threshold is generally the ________.

Taxpayers are not required to file a tax return unless their gross income passes a certain threshold. This threshold is generally the ________.



A. applicable standard deduction amount


B. personal exemption amount


C. twice the applicable standard deduction amount


D. applicable standard deduction amount plus the personal exemption amount


Answer: D. applicable standard deduction amount plus the personal exemption amount

Why would a taxpayer file a tax return if not required to do so?

Why would a taxpayer file a tax return if not required to do so?



A. to remain in favor with the IRS


B. to claim a refund of taxes paid


C. all taxpayers are required to file returns


D. in order to claim the standard deduction


Answer: B. to claim a refund of taxes paid

Which of the following is not true of the extension to file an individual tax return?

Which of the following is not true of the extension to file an individual tax return?



A. It is granted automatically by the IRS if requested


B. It must be requested by the original due date of the return


C. It extends the due date for the return and associated tax payments beyond the original due date of the tax return


D. The extension is for six months beyond the original due date


Answer: C. It extends the due date for the return and associated tax payments beyond the original due date of the tax return

Which of the following statements about estimated tax payments and underpayment penalties is true for individual taxpayers?

Which of the following statements about estimated tax payments and underpayment penalties is true for individual taxpayers?



A. Taxpayers who have paid their full tax liability by the original tax return due date are protected from underpayment penalties.


B. Taxpayers who have paid their full tax liability by the extended tax return due date are protected from underpayment penalties.


C. Taxpayers who have uneven income streams can pay estimated tax quarterly in uneven amounts and not be susceptible to underpayment penalties.


D. Taxpayers who have paid their required amount of estimated tax, even though not on time, are protected from underpayment penalties.


Answer: C. Taxpayers who have uneven income streams can pay estimated tax quarterly in uneven amounts and not be susceptible to underpayment penalties.

Which of the following statement(s) concerning estimated tax payments and underpayment penalties for individuals is (are) true?

Which of the following statement(s) concerning estimated tax payments and underpayment penalties for individuals is (are) true?



A. Whether taxpayers are subject to underpayment penalties is determined on a quarterly basis.


B. Due dates for estimated tax payments for a given year are April 15, June 15, September 15 of that year and January 15 of the next year unless these dates fall on a weekend or a holiday.


C. The amount of penalty depends on the amount of the underpayment among other factors.


D. All of these statements are true.


Answer: D. All of these statements are true.

What happens if the taxpayer owes an underpayment penalty, but does not compute it on Form 2210?

What happens if the taxpayer owes an underpayment penalty, but does not compute it on Form 2210?



A. Nothing, unless the taxpayer is audited


B. The taxpayer is immediately sent to the Tax Court


C. The IRS will compute and assess the penalty


D. The penalty is increased by five percentage points


Answer: C. The IRS will compute and assess the penalty

Which of the following represents the correct order in which credits are applied to gross tax liability (from first to last)?

Which of the following represents the correct order in which credits are applied to gross tax liability (from first to last)?



A. Nonrefundable personal, business, refundable


B. Business, nonrefundable personal, refundable


C. Refundable, nonrefundable personal, business


D. Refundable, business, nonrefundable personal


Answer: A. Nonrefundable personal, business, refundable

Cassy reports a gross tax liability of $1,000. She also claims $400 of nonrefundable personal credits, $700 of refundable personal credits, and $200 of business credits. What is Cassy's tax refund or tax liability due after applying the credits?

Cassy reports a gross tax liability of $1,000. She also claims $400 of nonrefundable personal credits, $700 of refundable personal credits, and $200 of business credits. What is Cassy's tax refund or tax liability due after applying the credits?



A. $1,000 taxes payable


B. $0 refund or taxes payable


C. $700 refund


D. $300 refund


Answer: D. $300 refund

Sheryl's AGI is $250,000. Her current tax liability is $52,068. Last year, her tax liability was $48,722. She will not owe underpayment penalties if her total estimated tax payments are at least which of the following (rounded) amounts (assume she makes the required payments each quarter)?

Sheryl's AGI is $250,000. Her current tax liability is $52,068. Last year, her tax liability was $48,722. She will not owe underpayment penalties if her total estimated tax payments are at least which of the following (rounded) amounts (assume she makes the required payments each quarter)?



A. $46,861


B. $48,722


C. $51,547


D. $53,594


Answer: A. $46,861

Which of the following statements regarding credits is correct?

Which of the following statements regarding credits is correct?



A. Business expenses are generally refundable credits


B. Business credits that are generated in one year but are not utilized in that year expire


C. Business credits that are generated in one year but are not utilized in that year may be carried forward to future years but not back to a prior year


D. Business credits that are generated in one year but are not utilized in that year may be carried back to the previous year and then forward to future years


Answer: D. Business credits that are generated in one year but are not utilized in that year may be carried back to the previous year and then forward to future years

If there is not enough gross tax liability to use the foreign tax credit, __________.

If there is not enough gross tax liability to use the foreign tax credit, __________.



A. it expires unused


B. it is carried back 2 years or forward 20 years


C. it is carried back 3 years or forward 5 years


D. it is carried back 1 year or forward 10 years


Answer: D. it is carried back 1 year or forward 10 years

Which of the following tax credits is fully refundable?

Which of the following tax credits is fully refundable?



A. American opportunity credit


B. Dependent care credit


C. Earned income credit


D. None of these


Answer: C. Earned income credit

How could an individual obtain a business tax credit?

How could an individual obtain a business tax credit?



A. Through self-employment activities


B. Through flow-through from a partnership or S corporation


C. By working overseas and obtaining a foreign tax credit


D. All of these


Answer: D. All of these

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