Question 1

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 purpose of the disable access credit is to encourage small businesses to modify their facilities to make them accessible.

Question 2

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

Accepted Answer

Qualifying expenses of $3,000 are reduced by the amount reimbursed by the employer. 3,000 - 1,500 = 1,500 expenses eligible for credit. 1500 × .20 = 300

Question 3

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

Accepted Answer

The credit is 100% of the first $2,000 and 25% of the next $2,000 of educational expenses. [($2,000 × 100%) + ($2,000 × 25%) = $2,500]. However, the credit must be phased out based on Joe's AGI. ($84,000 - $80,000)/10,000 × $2,500 = $1,000. $2,500 - 1,000 = 1,500 allowable credit.

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

Accepted Answer

($35,000 AGI - $15,000)/$2,000 = 10 percentage point reduction. $3,000 (limit for one child) × 25% (rate from table on page I:14-12) = $750

Question 5

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 application of general business credits is limited to the amount by which net income tax exceeds tentative minimum tax.

Question 6

Nonrefundable tax credits

Accepted Answer

Nonrefundable tax credits may offset the tax liability only.

Question 7

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

Accepted Answer

The EITC is available to individuals without children who meet specific requirements.

Question 8

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

Accepted Answer

The maximum credit amount is $2,500 per student.

Question 9

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

Accepted Answer

$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 10

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

Accepted Answer

The credit is 100% of the first $2,000 and 25% of the next $2,000 of educational expenses. The scholarship reduces the amount deemed paid by Timothy and Alice to $3,000. [($2,000 × 100%) + ($1,000 × 25%) = $2,250].

Question 11

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

Accepted Answer

The answer of Lee and Whitney incurred qualified adoption expenses...

Question 12

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?

Accepted Answer

Although the limit for two qualifying children is the lesser of $6,000 or the actual expenses, the earned income limitation applies. The amount of qualifying expenses can not exceed the earned income of the spouse with the lesser earned income, in this case, $5,000.

Question 13

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

Accepted Answer

$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 14

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

Accepted Answer

Qualified research expenses are defined as internal and external research expenses that are incident to the development or improvement of a product or component.

Question 15

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

Accepted Answer

The EITC is a refundable credit.

Question 16

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

Accepted Answer

$6,000 (limit for two or more children) × .20 = $1,200. Their AGI is above the amount at which the 20% rate applies.

Question 17

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

Accepted Answer

Nothing is creditable in 2014 because the adoption is not final. In 2015, $6,000 + $9,000 = $15,000 is creditable but limited to the maximum credit of $13,400.

Question 18

Which statement is correct?

Accepted Answer

Only tax credits reduce the tax liability dollar-for-dollar; tax deductions generate savings based on the taxpayer's marginal tax rate.

Question 19

Refundable tax credits

Accepted Answer

Refundable credits not only offset a taxpayer's tax liability but if the credits exceed the tax liability, the excess will be paid (refunded) directly to the taxpayer.

Question 20

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

Accepted Answer

The credit is 100% of the first $2,000 and 25% of the next $2,000 of educational expenses totaling $2,500.

Quiz 14: Special Tax Computation Methods, Tax Credits, and Payment of Tax