Question 1

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

Accepted Answer

The earned income credit is available to taxpayers with or without qualifying children, but the amount of the credit increases with the number of qualifying children.

Question 2

Nonrefundable tax credits
A)only offset a taxpayer's tax liability in the current year.
B)may only be used if the taxpayer is receiving a refund.
C)can be carried back tone year 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 reduce a taxpayer's tax liability to zero in the current year; they cannot result in a refund or be carried forward or back.

Question 3

Mingming and Xavier,unrelated single taxpayers,have each incurred a $1,000 expenditure.Before considering this expenditure,Mingming has taxable income of $600,000 and Xavier has taxable income of $32,000.Assume the expenditure qualifies as either a tax deduction or a 25% credit.Which of the following statements is correct?
A)Mingming will prefer the credit,but Xavier will prefer the deduction.
B)Mingming will prefer the deduction,but Xavier will prefer the credit.
C)Both taxpayers will prefer the credit.
D)Both taxpayers will prefer the deduction.

Accepted Answer

The answer of Mingming and Xavier,unrelated single taxpayers,have each incurred...

Question 4

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 child and dependent care credit is $300. The credit is calculated as follows:Child care expenses: $3,500Minus: Employer reimbursement: $1,500Eligible expenses: $2,000Credit rate: 20%Credit: $2,000 x 20% = $300

Question 5

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 a tax credit available to eligible small businesses for making facilities accessible to disabled individuals. The credit can be claimed for 50% of expenses up to $10,250, resulting in a maximum credit of $5,000.

Question 6

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 eligible expenses, with a maximum credit of $3,000 for one child. The percentage ranges from 20% to 35%, depending on the taxpayer's AGI. In this case, Bud and Stella's AGI is below $43,000, so they are eligible for a 35% credit on up to $3,000 of child care expenses. Therefore, their credit would be $3,000 x 35% = $1,050. However, since their actual expenses were only $3,500, their credit is limited to that amount. Therefore, their child and dependent care credit is $750.

Question 7

Evan and Barbara incurred qualified adoption expenses in 2018 of $6,000,and then incurred $9,000 more in 2019 when the adoption of their child became final.Their 2018 AGI was $110,000 and their 2019 AGI was $100,000.The allowable adoption credit is
A)$14,080 in 2019.
B)$15,000 in 2019.
C)$6,000 in 2018 and $8,080 in 2019.
D)$6,000 in 2018 and $9,000 in 2019.

Accepted Answer

The adoption credit is claimed in the year the adoption becomes final. In 2019, they can claim the full amount of their qualified expenses, which is $15,000, but the maximum allowable credit for 2019 is $14,080.

Question 8

A credit is available to encourage employers to provide child care for employees.The employer can either operate its own child care facility for its employees or pay a separate qualified child care facility under contract.

Accepted Answer

This statement is true. The credit is called the Employer-Provided Child Care Credit and allows for a credit of up to 25% of qualified child care expenses incurred by employers. The employer can either operate its own child care facility or pay for child care services from a separate qualified facility.

Question 9

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 qualifying expenses for the child and dependent care credit are limited to the lesser of the actual expenses incurred ($5,500) or the earned income of the lower-earning spouse ($5,000). Therefore, the qualifying expenses are $5,000.

Question 10

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, a $1,000 tax credit reduces the tax liability by $1,000.

Question 11

A credit for rehabilitation expenditures is available to a business for the purchase price of a building which has received the certified historic structure designation.

Accepted Answer

The credit for rehabilitation expenditures is available for the costs of rehabilitating a certified historic structure, not for the purchase price of the building.

Question 12

Application of a taxpayer's general business credits are limited this year.Excess general business credits can be carried back one year and carried forward ten years.

Accepted Answer

The answer of Application of a taxpayer's general business credits...

Question 13

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 14

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

General business credits cannot be used to offset the alternative minimum tax (AMT). They can only reduce the regular tax liability.

Question 15

A larger work opportunity credit is available for employers who hire any veteran of the U.S.military.

Accepted Answer

The answer of A larger work opportunity credit is available...

Question 16

Refundable 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 one year 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

Refundable tax credits allow the excess over the taxpayer's tax liability to be paid to the taxpayer, which is not limited to offsetting the tax liability. They can be carried back one year and carried forward 15 years if they exceed tax liability in the current year. Therefore, options A and B are incorrect.

Question 17

The general business credits are refundable credits.

Accepted Answer

General business credits are nonrefundable, meaning they can reduce tax liability to zero but cannot result in a refund.

Question 18

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

Accepted Answer

Expenses that are incident to the development or improvement of a product or component are eligible for the research credit. These expenses can include wages paid to employees for conducting research, supplies used in the research, and certain contract research expenses.

Question 19

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

Accepted Answer

This statement is false. The earned income credit is refundable regardless of whether or not a tax has been withheld. If the credit exceeds the amount of taxes owed, the taxpayer can receive the excess as a refund.

Question 20

Business energy tax credits are available to businesses that invest in energy-conserving solar energy properties.

Accepted Answer

Business energy tax credits are indeed available to businesses that invest in energy-conserving solar energy properties.

Quiz 30: Special Tax Computation Methods,tax Credits,and Payment of Tax

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

Nonrefundable tax credits