Question 1

Trudy is Jocelyn's friend. Trudy looks after Jocelyn's four-year-old son during the day so Jocelyn can go to work. During the year, Jocelyn paid Trudy $4,000 to care for her son. What is the amount of Jocelyn's child and dependent care credit if her AGI for the year was $30,000? (Exhibit 8-9)

Accepted Answer

The child and dependent care credit for someone with an AGI of $30,000, paying $4,000 for care, would be 20% of the expenses. Therefore, the credit would be 20% of $4,000, which equals $800.

Question 2

Quantitatively, what is the relationship between the AGI phase-out thresholds for the child tax credit?

Accepted Answer

The AGI phase-out thresholds for the child tax credit are $200,000 for single and head of household filers, $400,000 for married filing jointly filers, and $200,000 for married filing separately filers. This means that the phase-out threshold for married filing separately is lower than for head of household/single and higher than for married filing jointly. Therefore, the correct answer is D, which states that the relationship between the AGI phase-out thresholds is Head of household/Single = Married Filing Separately < Married Filing Jointly.

Question 3

The amount of expenditures eligible for the child and dependent care credit is the least of three amounts. Which of the following is not one of those amounts?

Accepted Answer

The three amounts used to determine the maximum credit are (A) the total amount of child and dependent care expenditures for the year, (B) $3,000 for one qualifying person or $6,000 for two or more qualifying persons, and (D) the taxpayer's earned income for the year. The dependent's earned income (Choice C) is not one of the amounts used to determine the maximum credit. The three amounts that determine the amount of expenditures eligible for the child and dependent care credit are A) the total amount of child and dependent care expenditures for the year, B) $3,000 for one qualifying person or $6,000 for two or more qualifying persons, and D) the taxpayer's earned income for the year. The dependent's earned income for the year is not one of those amounts.

Question 4

Carolyn has an AGI of $39,500 (all from earned income)and two qualifying children and is filing as a head of household. What amount of earned income credit is she entitled to?(Exhibit 8-10)

Accepted Answer

The EIC for a taxpayer with two qualifying children and an AGI of $39,500 is $1,672.

Question 5

Kaelyn's mother, Judy, looks after Kaelyn's four-year-old twins so Kaelyn can go to work (she drops off and picks up the twins from Judy's home every day). Since Judy is a relative, Kaelyn made sure, for tax purposes, to pay her mother the going rate for child care ($6,300 for the year). What is the amount of Kaelyn's child and dependent care credit if her AGI for the year was $36,000? (Exhibit 8-9)

Accepted Answer

The child and dependent care credit is calculated based on expenses paid for the care of qualifying individuals (in this case, Kaelyn's twins) to allow the taxpayer (Kaelyn) to work. The maximum expense allowed for two or more qualifying individuals is $6,000. The credit rate for Kaelyn's AGI of $36,000 is 24%. Therefore, the credit is $6,000 (maximum expense) * 24% = $1,440.

Question 6

Which of the following statements regarding the child and dependent care credit is true?

Accepted Answer

The answer of Which of the following statements regarding the...

Question 7

Kaelyn's mother, Judy, looks after Kaelyn's four-year-old twins so Kaelyn can go to work (she drops off and picks up the twins from Judy's home every day). Since Judy is a relative, Kaelyn made sure, for tax purposes, to pay her mother the going rate for child care ($6,390 for the year). What is the amount of Kaelyn's child and dependent care credit if her AGI for the year was $36,900? (Exhibit 8-9)

Accepted Answer

The child and dependent care credit is calculated based on a percentage of the qualifying expenses, which is capped at $3,000 per child (up to $6,000 for two or more children). With an AGI of $36,900, the applicable percentage is 24%. Therefore, the credit is 24% of $6,000, which is $1,440.

Question 8

Which of the following statements concerning a comparison between employees and independent contractors is most accurate?

Accepted Answer

Nontaxable fringe benefits, such as health insurance and employer-provided retirement contributions, are generally only available to employees and not independent contractors. The other statements are inaccurate. A) Only independent contractors can deduct business expenses, and they do not deduct them as miscellaneous itemized deductions. B) Employers are only required to withhold FICA taxes from employees, not from independent contractors. D) Employers are only required to withhold federal income taxes from employees, not from independent contractors. Nontaxable fringe benefits, such as health insurance and retirement benefits, are typically only available to employees and not independent contractors. The other options are incorrect: A – only independent contractors can deduct business expenses, C – employers withhold FICA taxes for employees but not for independent contractors, and D – employers withhold federal income taxes for employees but not for independent contractors.

Question 9

Which of the following does not affect the amount of the earned income credit?

Accepted Answer

The amount of the earned income credit is not affected by the amount of credit taken in previous years. It is determined by factors such as filing status, number of qualifying children, and the taxpayer's adjusted gross income (AGI), but not by the credit amount in previous years.

Question 10

Which of the following statements regarding the earned income credit is true?

Accepted Answer

The earned income credit is a refundable credit that is based on earned income, which means a taxpayer with more earned income may receive more credit than a taxpayer with less earned income. The earned income credit is a refundable credit that is available to taxpayers with low to moderate earned income. The credit amount is based on the taxpayer's earned income, and it is possible for a taxpayer with more earned income to receive a greater credit amount than a taxpayer with less earned income. Therefore, option B is the correct choice.

Option A is incorrect because the earned income credit is a refundable credit, not a nonrefundable credit. Option C is partially correct because a 70-year-old taxpayer without dependents may be eligible for the credit if they meet certain income requirements. However, the age of the taxpayer alone does not determine eligibility for the credit. Option D is incorrect because the earned income credit is only available to taxpayers with earned income, not to those with investment income like interest from corporate bonds.

Question 11

Which of the following is not true of the American opportunity tax credit?

Accepted Answer

This statement is not true as the taxpayer can claim the American Opportunity Tax Credit for their own qualifying educational expenses or for the expenses of a dependent, even if the taxpayer did not pay for those expenses themselves. This statement is false. A taxpayer may claim the American opportunity tax credit even if they did not personally pay the dependent's qualifying educational expenses, as long as the taxpayer has legal responsibility for the dependent.

Question 12

Which of the following statements concerning tax credits is true?

Accepted Answer

Tax credits directly reduce a taxpayer's tax liability dollar-for-dollar, while tax deductions reduce taxable income. This means that tax credits are generally more beneficial as they provide a more significant reduction in tax liability. Additionally, tax credits are not dependent on the taxpayer's marginal tax rate, unlike tax deductions. Refundable tax credits can exceed a taxpayer's gross tax liability, and any excess can be refunded to the taxpayer. Tax credits directly reduce the amount of tax owed, while tax deductions reduce taxable income. Therefore, tax credits are generally more beneficial than tax deductions. Additionally, tax credits are not dependent on a taxpayer's marginal tax rate. Refundable tax credits may exceed a taxpayer's gross tax liability and result in a refund.

Question 13

Which of the following is not one of the general tax credit categories?

Accepted Answer

The general tax credit categories are nonrefundable personal, refundable personal, and business. Refundable business is not a general tax credit category. The general tax credit categories are nonrefundable personal, refundable personal, and business. There is no such category as refundable business tax credits.

Question 14

Rhianna and Jay are married filing jointly in 2020. They have six children under age 17 for whom they may claim the child tax credit. Their AGI was $419,400. What amount of child tax credit may they claim on their 2020 tax return?

Accepted Answer

The answer of Rhianna and Jay are married filing jointly...

Question 15

Which of the following statements regarding the child and dependent care credit is false?

Accepted Answer

While there are income limitations for claiming the child and dependent care credit, taxpayers may still be able to claim a reduced credit if their income is too high. However, if their income exceeds a certain threshold, they will be completely ineligible for the credit.

Question 16

Carolyn has an AGI of $38,000 (all from earned income)and two qualifying children and is filing as a head of household. What amount of earned income credit is she entitled to? (Exhibit 8-10)

Accepted Answer

The answer of Carolyn has an AGI of $38,000 (all...

Question 17

Which of the following is not true of the lifetime learning credit?

Accepted Answer

A taxpayer can only claim the lifetime learning credit for their own qualifying expenses, not the expenses of multiple dependents. A taxpayer can only claim the lifetime learning credit for their own qualifying expenses, not the expenses of their dependents.

Question 18

Which of the following statements regarding credits is correct?

Accepted Answer

Business credits that are generated in one year but are not utilized in that year can often be carried back to the previous year and then forward to future years, allowing businesses to apply these credits to reduce tax liability in other years.

Question 19

Which of the following statements regarding the child tax credit is false?

Accepted Answer

The age limit for the child tax credit has been raised to 17, so the child for whom the credit is claimed must be under the age of 17 at the end of the year. The age limit for the child tax credit was increased to under the age of 17 beginning with tax year 2018, so statement A is no longer true. The child must be under the age of 17 at the end of the year to qualify for the credit.

Question 20

Trudy is Jocelyn's friend. Trudy looks after Jocelyn's four-year-old son during the day so Jocelyn can go to work. During the year, Jocelyn paid Trudy $4,060 to care for her son. What is the amount of Jocelyn's child and dependent care credit if her AGI for the year was $30,600? (Exhibit 8-9)

Accepted Answer

The answer of Trudy is Jocelyn's friend. Trudy looks after...

Quiz 8: Individual Income Tax Computation and Tax Credits