Deck 12: Tax Credits and Payments

Question 1

Qualified rehabilitation expenditures include the cost of acquiring the building,but not the cost of acquiring the land.

Answer 1

False

Question 2

An employer's tax deduction for wages is not affected by the work opportunity tax credit.

Answer 2

False

Question 3

Only certain taxpayers are eligible to take the basic research credit.

Answer 3

True

Question 4

Some (or all)of the tax credit for rehabilitation expenditures will have to be recaptured if the rehabilitated property is disposed of prematurely or if it ceases to be qualifying property.

Question 5

A taxpayer who qualifies for the low-income housing credit claims the credit over a 10-year period.

Question 6

The tax benefits resulting from tax credits and tax deductions are affected by the tax rate bracket of the taxpayer.

Question 7

The work opportunity tax credit is available only for wages paid to qualifying individuals during their first year of employment.

Question 8

If a taxpayer is required to recapture any tax credit for rehabilitation expenditures,the recapture amount must be added to the adjusted basis of the rehabilitation expenditures.

Question 9

Any unused general business credit must be carried back 1 year and then forward for 15 years.

Question 10

The purpose of the tax credit for rehabilitation expenditures is to encourage the relocation of businesses from older,economically distressed areas (i.e. ,inner city)to newer locations.

Question 11

Qualified research and experimentation expenditures are not only eligible for the 20% tax credit,but also can be expensed in the year incurred.

Question 12

Employers are encouraged by the work opportunity tax credit to hire individuals who have been long-term recipients of family assistance welfare benefits.

Question 13

The tax benefit received from a tax credit is affected by the tax rate of the taxpayer.

Question 14

A LIFO method is applied to general business credit carryovers,carrybacks,and utilization of credits earned during a particular year.

Question 15

Income tax withheld on wages is an example of a refundable credit.

Question 16

The incremental research activities credit is 20% of the qualified research expenses that exceed the base amount.

Question 17

The purpose of the work opportunity tax credit is to encourage employers to hire individuals from specified target groups traditionally subject to high rates of unemployment.

Question 18

Nonrefundable credits are those that reduce the taxpayer's tax liability but are not paid when the amount of the credit (or credits)exceeds the taxpayer's tax liability.

Question 19

The tax credit for rehabilitation expenditures for certified historic structures does not differ from that for qualifying structures that are not certified historic structures.

Question 20

The low-income housing credit is available to low-income tenants who reside in qualifying low-income housing.

Question 21

An eligible taxpayer may elect to receive advance payments of the earned income credit from his or her employer.

Question 22

The maximum credit for child and dependent care expenses is $2,100 if only one spouse is employed and the other spouse is a full-time student.

Question 23

Unless a taxpayer is disabled,the tax credit for the elderly or disabled is available only if the taxpayer is at least 59 1/2 years old.

Question 24

A taxpayer who meets the age requirement and receives no Social Security benefits will be entitled to the full tax credit for the elderly.

Question 25

BlueCo incurs $500,000 during the year to construct a facility that will be used exclusively for the care of its employees' pre-school age children during normal working hours.The credit for employer-provided child care available to BlueCo this year is $100,000.

Question 26

An individual generally may claim a credit for adoption expenses in the year in which the expenses are paid.

Question 27

The disabled access credit was enacted to encourage small businesses to make their businesses more accessible to disabled individuals.

Question 28

Because current U.S.corporate income tax rates are higher than many foreign corporate income tax rates,the overall limitation does not yield a lower foreign tax credit than the amount of foreign taxes actually paid.

Question 29

The earned income credit is available only if the taxpayer has at least one qualifying child in the household.

Question 30

The disabled access credit is computed at the rate of 50% of all access expenditures incurred by the taxpayer during the year.

Question 31

Cardinal Company incurs $500,000 during the year to construct a facility that will be used exclusively for the care of its employees' pre-school age children during normal working hours.Assuming Cardinal claims the credit for employer-provided child care this year,its basis in the newly constructed facility is $375,000.

Question 32

The child tax credit is based on the number of the taxpayer's qualifying children under age 17.

Question 33

If a taxpayer chooses not to claim a foreign tax credit,the foreign income taxes paid can be claimed as a deduction.

Question 34

The earned income credit,a form of a negative income tax,is a refundable credit.

Question 35

A taxpayer's earned income credit is dependent on the number of his or her qualifying children.

Question 36

The maximum child tax credit under current law is $1,200 per qualifying child.

Question 37

In computing the foreign tax credit,the lesser of the foreign income taxes paid or the overall limitation is allowed.

Question 38

If the cost of a building constructed and placed into service by an eligible small business in the current year includes the cost of a wheelchair ramp,the cost of the ramp qualifies for the disabled access credit.

Question 39

A small employer incurs $1,800 for consulting fees related to establishing a qualified retirement plan for its 85 employees.As a result,the employer may claim the credit for small employer pension plan startup costs for $900.

Question 40

Unused foreign tax credits can be carried back one year and forward fifteen years.

Question 41

John owns and operates a real estate agency as a sole proprietor.On a full-time basis,he employs his 17-year old daughter as a receptionist and his 22-year old son as a bookkeeper.Only the son is subject to FICA withholding.

Question 42

Ahmad is considering making a $10,000 investment in a venture which its promoter promises will generate immediate tax benefits for him.Ahmad,who normally itemizes his deductions,is in the 28% marginal tax bracket.If the investment is of a type where the taxpayer may claim either a tax credit of 25% of the amount of the expenditure or an itemized deduction for the amount of the investment,what treatment normally would be most beneficial to Ahmad and by how much will Ahmad's tax liability decline because of the investment?

A)$0,take neither the itemized deduction nor the tax credit.
B)$2,500,take the tax credit.
C)$2,800,take the itemized deduction.
D)Both options produce the same benefit.
E)None of the above.

Question 43

The calculation of FICA and the self-employment tax both involve two components: the Social Security portion and the Medicare portion,each portion of which is imposed on the same base amounts.

Question 44

A taxpayer may qualify for the credit for child and dependent care expenses if the taxpayer's dependent is under age 13.

Question 45

For the current year,the base amount for the Social Security portion (old age,survivors,and disability insurance)is different from that for the Medicare portion of FICA.

Question 46

Expenses that are reimbursed by a taxpayer's employer under a dependent care assistance program canalso qualify for the credit for child and dependent care expenses.

Question 47

Which of the following correctly describes the tax credit for rehabilitation expenditures?

A)The cost of enlarging any existing business building is a qualifying expenditure.
B)The cost of facilities related to the building (e.g. ,a parking lot)is a qualifying expenditure.
C)No recapture provisions apply.
D)No credit is allowed for the rehabilitation of personal use property.
E)None of the above.

Question 48

The American Opportunity credit is available per eligible student,while the lifetime learning credit is calculated per taxpayer.

Question 49

The components of the general business credit include all of the following except:

A)Credit for employer-provided child care.
B)Disabled access credit.
C)Research activities credit.
D)Tax credit for rehabilitation expenditures.
E)All of the above are components of the general business credit.

Question 50

Roger is considering making a $3,000 investment in a venture that its promoter promises will generate immediate tax benefits for him.Roger,who does not anticipate itemizing his deductions,is in the 30% marginal income tax bracket.If the investment is of a type that produces a tax credit of 40% of the amount of the expenditure,by how much will Roger's tax liability decline because of the investment?

A)$0.
B)$900.
C)$1,100.
D)$1,200.
E)None of the above.

Question 51

For purposes of computing the credit for child and dependent care expenses,the qualifying employment-related expenses are limited to an individual's actual or deemed earned income.

Question 52

Qualifying tuition expenses paid from the proceeds of a tax-exempt scholarship do not give rise to an education tax credit.

Question 53

Child care payments to a relative are not eligible for the credit for child and dependent care expenses if the relative is a child (under age 19)of the taxpayer.

Question 54

Both education tax credits are available for qualified tuition expenses,and in certain instances,also may be available for room and board.

Question 55

Refundable tax credits include the:

A)Foreign tax credit.
B)Tax credit for rehabilitation expenses.
C)Credit for certain retirement plan contributions.
D)Earned income credit.
E)None of the above.

Question 56

Only self-employed individuals are required to make estimated tax payments.

Question 57

Child and dependent care expenses include amounts paid for general household services.

Question 58

The education tax credits (i.e. ,the American Opportunity credit and the lifetime learning credit)are available to help defray the cost of higher education regardless of the income level of the taxpayer.

Question 59

Which of the following best describes the treatment applicable to unused business credits?

A)Unused amounts are carried forward indefinitely.
B)Unused amounts are first carried back one year and then forward for 20 years.
C)Unused amounts are first carried back one year and then forward for 10 years.
D)Unused amounts are first carried back three years and then carried forward for 15 years.
E)None of the above.

Question 60

Molly has generated general business credits over the years that have not been utilized.The amounts generated and not utilized follow: In the current year,2010,her business generates an additional $30,000 general business credit.In 2010,based on her tax liability before credits,she can utilize a general business credit of up to $40,000.After utilizing the carryforwards and the current year credits,how much of the general business credit generated in 2010 is available for future years?

A)$0.
B)$2,000.
C)$23,000.
D)$28,000.
E)None of the above.

Question 61

Green Company,in the renovation of its building,incurs $9,000 of expenditures that qualify for the disabled access credit.The disabled access credit is:

A)$8,750.
B)$4,500.
C)$4,375.
D)$4,250.
E)None of the above.

Question 62

During the year,Tulip,Inc. ,incurs the following research expenditures: Tulip's qualifying research expenditures for the year are:

A)$120,000.
B)$150,000.
C)$159,000.
D)$180,000.
E)None of the above.

Question 63

Which,if any,of the following correctly describes the research activities credit?

A)The research activities credit is the greater of the incremental research credit,the basic research credit,or the energy research credit.
B)If the research activities credit is claimed,no deduction is allowed for research and experimentation expenditures.
C)The credit is not available for research conducted outside the United States.
D)All corporations qualify for the basic research credit.
E)None of the above.

Question 64

In March 2010,Gray Corporation hired two individuals,both of whom were certified as long-term recipients of family assistance benefits.Each employee was paid $11,000 during 2010.Only one of the individuals continued to work for Gray Corporation in 2011,earning $9,000 during the year.No additional workers were hired in 2011.Gray Corporation's work opportunity tax credit amounts for 2010 and 2011 are:

A)$4,000 in 2010,$4,000 in 2011.
B)$8,000 in 2010,$4,500 in 2011.
C)$8,000 in 2010,$5,000 in 2011.
D)$8,000 in 2010,$9,000 in 2011.
E)None of the above.

Question 65

During the year,Purple Corporation (a U.S.Corporation)has U.S.-source income of $900,000 and foreign income of $300,000.The foreign-source income generates foreign income taxes of $75,000.The U.S.income tax before the foreign tax credit is $408,000.Purple Corporation's foreign tax credit is:

A)$56,250.
B)$75,000.
C)$102,000.
D)$408,000.
E)None of the above.

Question 66

Amber is in the process this year of renovating the office building (originally placed in service in 1976)used by her business.Because of current Federal Regulations that require the structure to be accessible to handicapped individuals,she incurs an additional $18,000 for various features,such as ramps and widened doorways,to make her office building more accessible.The $18,000 incurred will produce a disabled access credit of what amount?

A)$0.
B)$5,000.
C)$5,125.
D)$9,000.
E)None of the above.

Question 67

Which of the following statements concerning the credit for child and dependent care expenses is not correct?

A)A taxpayer is not allowed both an exclusion from income and the credit for child and dependent care expenses on the same amount.
B)A taxpayer is not allowed both a deduction as a medical expense and the credit for child and dependent care expenses on the same amount.
C)If a taxpayer's adjusted gross income exceeds $43,000,the rate for the credit for child and dependent care expenses is 20%.
D)If a taxpayer's adjusted gross income exceeds $15,000 but is not over $17,000,the rate for the credit for child and dependent care expenses is 35%.
E)All of the above are correct.

Question 68

Several years ago,Tom purchased a structure for $150,000 that was originally placed in service in 1929.Three and one-half years ago he incurred qualifying rehabilitation expenditures of $300,000.In the current year,Tom sold the property in a taxable transaction.Calculate the amount of the recapture of the tax credit for rehabilitation expenditures.

A)$0.
B)$12,000.
C)$18,000.
D)$24,000.
E)None of the above.

Question 69

George and Martha are married and file a joint tax return claiming their two children,ages 10 and 8 as dependents.Assuming their AGI is $123,450,George and Martha's child tax credit is:

A)$0.
B)$750.
C)$1,300.
D)$2,000.
E)None of the above.

Question 70

Which,if any,of the following correctly describes the earned income credit?

A)Would be available regardless of the amount of the taxpayer's adjusted gross income.
B)Not available to a surviving spouse.
C)A taxpayer must have a qualifying child to take advantage of the credit.
D)Is a refundable credit.
E)None of the above.

Question 71

Which of the following statements regarding the adoption expenses credit is not true?

A)The adoption expenses credit is a nonrefundable credit.
B)The adoption expenses credit starts to be phased out in 2010 beginning when a taxpayer's modified AGI exceeds $182,520.
C)No adoption expenses credit is a available in 2010 if a taxpayer's modified AGI exceeds $222,520.
D)The adoption expenses credit is limited to no more than $12,100 per eligible child in 2010.
E)All of the above statements are true.

Question 72

Several years ago,Sarah purchased a structure for $300,000 that was originally placed in service in 1929.In the current year,she incurred qualifying rehabilitation expenditures of $400,000.The amount of the tax credit for rehabilitation expenditures,and the amount by which the building's basis for cost recovery would increase as a result of the rehabilitation expenditures are the following amounts:

A)$40,000 credit,$360,000 basis.
B)$40,000 credit,$400,000 basis.
C)$40,000 credit,$700,000 basis.
D)$80,000 credit,$320,000 basis.
E)None of the above.

Question 73

Kevin and Sue have two children,ages 8 and 14.They spend $6,200 per year on eligible employment related expenses for the care of their children after school.Kevin and Sue each earns a salary of $18,000.What is the amount of the credit for child and dependent care expenses?

A)$720.
B)$1,035.
C)$1,380.
D)$1,488.
E)None of the above.

Question 74

Tom,unmarried,pays Heloise (a housekeeper)$4,900 to care for his physically incapacitated mother so that he can be gainfully employed.He has AGI of $85,000 and claims his mother as a dependent.Tom may claim a credit for child and dependent care expenses of:

A)$0.
B)$600.
C)$800.
D)$980.
E)None of the above.

Question 75

George and Jill are husband and wife,ages 67 and 65 respectively.During the year,they receive Social Security benefits of $4,000 and have adjusted gross income of $11,000.Assuming they file a joint return,their tax credit for the elderly,before considering any possible limitation due to their tax liability,is:

A)$1,125.
B)$750.
C)$450.
D)$375.
E)None of the above.

Question 76

Jermaine and Kesha are married,file a joint tax return,have AGI of $82,500,and have two children.Devona is beginning her freshman year at State University during Fall 2010,and Arethia is beginning her senior year at Northeast University during Fall 2010 after having completed her junior year during the spring of that year.Both Devona and Arethia are claimed as dependents on their parents' tax return.Devona's qualifying tuition expenses and fees total $4,000 for the fall semester,while Arethia's qualifying tuition expenses and fees total $6,200 for each semester during 2010.Full payment is made for the tuition and related expenses for both children during each semester.The American Opportunity credit available to Jermaine and Kesha for 2010 is:

A)$2,500.
B)$3,000.
C)$5,000.
D)$6,000.
E)None of the above.

Question 77

Black Company paid wages of $360,000,of which $80,000 was qualified wages for the work opportunity tax credit under the general rules.Black Company's deduction for wages for the year is:

A)$280,000.
B)$328,000.
C)$332,000.
D)$360,000.
E)None of the above.

Question 78

Cardinal Corporation hires two persons certified to be eligible employees for the work opportunity tax credit under the general rules (e.g. ,food stamp recipients),each of whom is paid $15,000 during the year.As a result of this event,Cardinal Corporation may claim a work opportunity credit of:

A)$2,400.
B)$4,800.
C)$8,000.
D)$12,000.
E)None of the above.

Question 79

In 2009,Juan and Juanita incur $7,800 in legal and adoption fees directly related to the adoption of an infant son born in a nearby state.Over the next year,they incur another $4,500 of adoption expenses.The adoption becomes final in 2010.Which of the following choices properly reflects the amounts and years in which the adoption expenses credit is available. 2009 2010

A)$7,800 $ 4,500
B)None $12,170
C)None $12,300
D)$7,800 $ 4,370
E)None of the above.

Question 80

During the year,Green Corporation (a U.S.corporation)has U.S.-source income of $1,500,000 and foreign income of $1,000,000.The foreign-source income generates foreign income taxes of $480,000.The U.S.income tax before the foreign tax credit is $850,000.Green Corporation's foreign tax credit is:

A)$340,000.
B)$480,000.
C)$850,000.
D)$1,000,000.
E)None of the above.