Question 1

The earned income credit is available only to taxpayers with qualifying children.

Accepted Answer

This statement is false. The earned income credit is available to both taxpayers with qualifying children and those without qualifying children, but the credit amount is generally greater for those with qualifying children.

Question 2

A taxpayer's tentative minimum tax exceeds his net income tax so he will be paying the alternative minimum tax this year.The taxpayer has a sole proprietorship through which he has earned general business credits.The taxpayer can reduce his AMT to the extent of his general business credits.

Accepted Answer

The answer of A taxpayer's tentative minimum tax exceeds his...

Question 3

Timothy and Alice,who are married with modified AGI of $90,000,are sending their daughter to her first year of college.Their total tuition and related payments during the year amounted to $13,000.In addition,their daughter received a $10,000 scholarship to cover tuition.They have not taken advantage of any other type of tax benefit related to educational expenses.Their American Opportunity Tax Credit is
A)$2,000.
B)$2,250.
C)$2,500.
D)$3,000.

Accepted Answer

The answer of Timothy and Alice,who are married with modified...

Question 4

Bud and Stella are married,file a joint return,and have one child,age 3.Their combined AGI is $35,000.Bud and Stella incur $3,500 of child-care expenses during the current year.The child and dependent care credit is
A)$600.
B)$700.
C)$750.
D)$875.

Accepted Answer

The child and dependent care credit is calculated as a percentage of the qualifying expenses, ranging from 20% to 35% depending on the taxpayer's AGI. In Bud and Stella's case, their AGI falls within the highest percentage bracket of 35%. Therefore, their credit would be calculated as $3,500 x 35% = $1,225. However, the maximum amount of expenses that can be used to calculate the credit is $3,000 for one child. Therefore, the credit is capped at $3,000 x 35% = $1,050. Since this amount exceeds the maximum credit of $1,000 for one qualifying dependent, the credit is limited to $1,000.

Question 5

Max and Alexandra are married and incur $5,500 of qualifying expenses to care for their two children,ages 2 and 5.Max's earned income is $35,000 and Alexandra's earnings from a part-time job are $5,000.What is the amount of the qualifying expenses for purposes of computing the child and dependent care credit?
A)$3,000
B)$5,000
C)$5,500
D)$6,000

Accepted Answer

The answer of Max and Alexandra are married and incur...

Question 6

Refundable tax credits
A)only offset a taxpayer's tax liability.
B)may only be used if the taxpayer is receiving a refund.
C)have all expired but may be reinstated with new tax legislation.
D)allow the excess over the taxpayer's tax liability to be paid to the taxpayer.

Accepted Answer

Refundable tax credits allow the excess over the taxpayer's tax liability to be paid to the taxpayer. They are not limited to offsetting a taxpayer's tax liability, and they do not require the taxpayer to be receiving a refund. While some refundable tax credits may have expired, they could be reinstated with new tax legislation.

Question 7

Jeffery and Cassie,who are married with modified AGI of $90,000,are sending their son to his first year of college.Their total tuition and related payments during 2015 amounted to $5,500.They have not taken advantage of any other type of tax benefit related to educational expenses.Their American Opportunity Tax Credit for 2015 is
A)$1,500.
B)$2,000.
C)$2,500.
D)$5,000.

Accepted Answer

The American Opportunity Tax Credit allows taxpayers to claim up to $2,500 per eligible student for qualified education expenses, including tuition, fees, and course materials. The credit is gradually reduced for modified AGI between $80,000 and $90,000 for single filers and between $160,000 and $180,000 for joint filers.
Since Jeffery and Cassie's modified AGI is $90,000, they are still eligible for the full credit amount. Therefore, their American Opportunity Tax Credit for 2015 would be $2,500.

Question 8

Which statement is correct?
A)Tax credits reduce tax liability on a dollar-for-dollar basis.
B)Tax deductions reduce tax liability on a dollar-for-dollar basis.
C)The benefit of a tax credit depends on the taxpayer's marginal tax rate.
D)Tax deductions are less valuable for high-income taxpayers than for low-income taxpayers.

Accepted Answer

Tax credits directly reduce the amount of tax owed on a dollar-for-dollar basis. For example, if a taxpayer owes $1,000 in taxes and receives a $500 tax credit, their tax liability is reduced to $500.

Question 9

Nonrefundable tax credits
A)only offset a taxpayer's tax liability.
B)may only be used if the taxpayer is receiving a refund.
C)can be carried back two years and carried forward 15 years if they exceed tax liability in the current year.
D)allow the excess over the taxpayer's tax liability to be paid to the taxpayer.

Accepted Answer

Nonrefundable tax credits can only offset a taxpayer's tax liability, meaning they can reduce the amount of taxes owed but cannot result in a refund for the excess credit.

Question 10

The earned income credit is refundable only if a tax has been withheld.

Accepted Answer

This statement is false. The earned income credit is a refundable tax credit, meaning that if the amount of the credit is more than the amount of taxes owed, the taxpayer can receive the excess credit as a refund, even if no taxes were withheld.

Question 11

Mark and Stacy are married,file a joint return,and have one child,age 3.Their combined AGI is $55,000.Mark and Stacy incur $3,500 of child-care expenses during the current year.Mark's employer reimburses him $1,500 under a qualified dependent care assistance plan.The child and dependent care credit is
A)$300.
B)$600.
C)$700.
D)$1,200.

Accepted Answer

The answer of Mark and Stacy are married,file a joint...

Question 12

Evan and Barbara incurred qualified adoption expenses in 2014 of $6,000,and then incurred $9,000 more in 2015 when the adoption of their child became final.Their 2014 AGI was $110,000 and their 2015 AGI was $100,000.The allowable adoption credit is
A)$13,400 in 2015.
B)$15,000 in 2015.
C)$6,000 in 2014 and $7,400 in 2015.
D)$6,000 in 2014 and $9,000 in 20154.

Accepted Answer

The answer of Evan and Barbara incurred qualified adoption expenses...

Question 13

The nonrefundable disabled access credit is available to eligible small businesses for expenditures incurred to make existing business facilities accessible to disabled individuals.

Accepted Answer

The statement is true. The nonrefundable disabled access credit is available to eligible small businesses for expenditures incurred to make existing business facilities accessible to disabled individuals.

Question 14

Marvin and Pamela are married,file a joint return,and have two children,ages 9 and 11.Their combined AGI is $65,000.Marvin's earned income is $40,000; Pamela's is $25,000.They incur $6,500 of child-care expenses to enable them to be employed during the current year.Their child and dependent care credit is
A)$1,200.
B)$1,300.
C)$1,800.
D)$6,000.

Accepted Answer

The answer of Marvin and Pamela are married,file a joint...

Question 15

Joe,who is single with modified AGI of $84,000,is sending his son to his first year of college.The total tuition and related payments during the year amounted to $18,000.Joe has not taken advantage of any other type of tax benefit related to educational expenses.His American Opportunity Tax Credit is
A)$ 0.
B)$1,000.
C)$1,500.
D)$2,500.

Accepted Answer

The answer of Joe,who is single with modified AGI of...

Question 16

Marguerite and Josephus have two children,ages 13 and 10.Their modified AGI is $120,500.What is their child tax credit?
A)$900
B)$1,000
C)$2,000
D)None of the above.

Accepted Answer

A)$120,500 - $110,000 = 10,500.10,500/1,000 = 10.5,rounded to 11.11 × 50 = $550 reduction.$1,000 - 550 = $450 credit.The two credits total $900.

Question 17

Margo and Jonah have two children,ages 13 and 17.Their modified AGI is $120,500.What is their child tax credit?
A)$450
B)$900
C)$1,000
D)$2,000

Accepted Answer

A)$120,500 - $110,000 = 10,500.10,500/1,000 = 10.5,rounded to 11.11 × 50 = $550 reduction.$1,000 - 550 = $450 credit.The 17-year-old does not qualify for the credit.

Question 18

Lee and Whitney incurred qualified adoption expenses in 2014 of $2,000,and then incurred $7,000 more in 2015 when the adoption of their child became final.Their 2014 AGI was $120,000 and their 2015 AGI was $140,000.The allowable adoption credit is
A)$ 7,000 in 2015.
B)$ 9,000 in 2015.
C)$13,400 in 2015.
D)$2,000 in 2014 and $7,000 in 2015.

Accepted Answer

The adoption credit is claimed in the year the adoption becomes final. Since the adoption was finalized in 2015, they can claim the total expenses of $9,000 in 2015.

Question 19

Research expenses eligible for the research credit include costs that are incident to the development or improvement of a product or component.

Accepted Answer

Research expenses eligible for the research credit include costs that are incident to the development or improvement of a product or component, as defined by the IRS.

Question 20

The maximum amount of the American Opportunity Tax Credit for each qualified student is
A)$1,500.
B)$2,000.
C)$2,500.
D)$3,000.

Accepted Answer

The maximum amount of the American Opportunity Tax Credit for each qualified student is $2,500. Therefore, the best choice is option C. Options A, B, and D are incorrect as they all offer lower maximum amounts than the correct answer.

Quiz 28: Special Tax Computation Methods,tax Credits,and Payment of Tax

The earned income credit is available only to taxpayers with qualifying children.

A taxpayer's tentative minimum tax exceeds his net income tax so he will be paying the alternative minimum tax this year.The taxpayer has a sole proprietorship through which he has earned general business credits.The taxpayer can reduce his AMT to the extent of his general business credits.

Bud and Stella are married,file a joint return,and have one child,age 3.Their combined AGI is $35,000.Bud and Stella incur $3,500 of child-care expenses during the current year.The child and dependent care credit is

Refundable tax credits

Which statement is correct?

Nonrefundable tax credits

The earned income credit is refundable only if a tax has been withheld.

Evan and Barbara incurred qualified adoption expenses in 2014 of $6,000,and then incurred $9,000 more in 2015 when the adoption of their child became final.Their 2014 AGI was $110,000 and their 2015 AGI was $100,000.The allowable adoption credit is

The nonrefundable disabled access credit is available to eligible small businesses for expenditures incurred to make existing business facilities accessible to disabled individuals.

Marguerite and Josephus have two children,ages 13 and 10.Their modified AGI is $120,500.What is their child tax credit?

Margo and Jonah have two children,ages 13 and 17.Their modified AGI is $120,500.What is their child tax credit?

Lee and Whitney incurred qualified adoption expenses in 2014 of $2,000,and then incurred $7,000 more in 2015 when the adoption of their child became final.Their 2014 AGI was $120,000 and their 2015 AGI was $140,000.The allowable adoption credit is

Research expenses eligible for the research credit include costs that are incident to the development or improvement of a product or component.

The maximum amount of the American Opportunity Tax Credit for each qualified student is