Deck 6: Credits and Special Taxes

Question 1

A taxpayer with earned income of $50,000 is not eligible to claim the credit for child and dependent care expenses.

Answer 1

False

Question 2

Salary earned by minors may be taxed at their parents' tax rate.

Answer 2

False

Question 3

If the net unearned income of a minor child is to be taxed at the parents' tax rate,the parents may elect,under certain conditions,to include the child's gross income on their tax return.

Answer 3

True

Question 4

The child tax credit is not available for children age 17 and older.

Question 5

In calculating the individual AMT,the individual alternative minimum tax liability may not exceed the regular tax liability of the taxpayer.

Question 6

For all taxpayers,except those married filing separately,the individual alternative minimum tax rate for 2013 is 26 percent on the first $179,500 of income and 28 percent on income above $179,500.

Question 7

The total expenses that can be taken as a credit for all tax years for adoption of a child without "special needs" is $6,000.

Question 8

For 2013,the maximum amount of expenses that qualify for the child and dependent care credit is the same for three dependents as it is for two dependents.

Question 9

Net unearned income of certain minor children is taxed at their parents' tax rates.

Question 10

In all community property states,income from community property is community income.

Question 11

To be eligible for the earned income credit for 2013,a taxpayer must have a "qualifying child."

Question 12

The child credit is $1,000 per qualifying child unless it is phased out due to higher levels of parental income.

Question 13

The use of the earned income credit could result in a taxpayer receiving a refund even though he or she has not paid any income taxes.

Question 14

The foreign tax credit applies only to foreign corporations.

Question 15

The alternative minimum tax must be paid only if the tentative minimum tax exceeds a taxpayer's regular tax liability.

Question 16

An individual may claim both a credit and an exclusion from income in connection with the adoption of an eligible child,but may not claim both a credit and an exclusion for the same expense.

Question 17

Amounts paid to a relative generally do not qualify as child care expenses.

Question 18

In determining the amount of the child and dependent care credit,there is a limit of $2,000 on the amount of qualified expenses for one dependent.

Question 19

Unearned income of a 16-year-old child may be taxed at his or her parents' income tax rate.

Question 20

Married taxpayers must file a joint tax return to claim the child and dependent care credit.

Question 21

Bob and Carol file their tax returns using the married filing jointly status.Their AGI is $131,000.They have two children,ages 11 and 7.How much child tax credit can Bob and Carol claim for their two children?

A)$2,000
B)$1,000
C)$1,050
D)$950
E)None of the above is correct

Question 22

Jim has foreign income.He earns $25,000 from Country A which taxes the income at a 20 percent rate.He also has income from Country B of $15,000.Country B taxes the $15,000 at a 10 percent rate.His U.S.taxable income is $90,000,which includes the foreign income.His U.S.income tax on all sources of income before credits is $19,000.What is his foreign tax credit?

A)$6,500
B)$8,444
C)$5,846
D)$12,346
E)Jim does not qualify for a foreign tax credit.

Question 23

The child and dependent care provisions:

A)Apply only to children under age 15.
B)Are available only to single parents.
C)Are available for spouses incapable of self-care.
D)Are allowed only for taxpayers earning less than $43,000.

Question 24

In 2013,the child tax credit available to married taxpayers filing jointly is phased out,beginning at:

A)$55,000
B)$75,000
C)$95,000
D)$110,000

Question 25

Which one of the following taxpayers qualify for the earned income credit?

A)A 70-year-old doctor whose practice had a net loss and who has an AGI of $5,000 in 2013.
B)An 18-year-old college student who earns $8,000 at a part-time job.
C)A couple who have a combined AGI of $17,000 and three children but file separately.
D)A 31-year-old construction worker with $22,000 of AGI and two children.
E)None of the above qualifies for the earned income credit.

Question 26

Jessica and Robert have two young children.They have $7,000 of qualified child care expenses and an AGI of $24,000 in 2013.What is their allowable child care credit?

A)$7,000
B)$6,000
C)$2,100
D)$1,800
E)$900

Question 27

New York is a community property state.

Question 28

Taxpayer Q has net taxable income of $30,000 from Country Y which imposes a 40 percent income tax.In addition to the income from Country Y,taxpayer Q has net taxable income from U.S.sources of $120,000,and U.S.tax liability,before the foreign tax credit,of $41,750.What is the amount of Q's foreign tax credit?

A)$2,400
B)$8,350
C)$12,000
D)$30,000
E)None of the above

Question 29

Robert and Mary file a joint tax return for 2013,with adjusted gross income of $33,000.Robert and Mary earned income of $20,000 and $12,000 respectively,during 2013.In order for Mary to be gainfully employed,they pay the following child care expenses for their 4 year-old son,John: Union Day Care Center $\quad \$ 1,500$
Wilma, baby sitter (Robert's mother) $\quad \$ 1,000$ What is the amount of the child and dependent care credit they should report on their tax return for 2013?

A)$390
B)$260
C)$650
D)$625
E)None of the above

Question 30

The earned income credit:

A)Must be calculated on earned income as well as adjusted gross income in some cases.
B)Can not exceed the amount of the tax liability.
C)Is available only if the taxpayer has qualifying children.
D)Is available to married taxpayers who file separate returns.

Question 31

In 2013,Alex has income from wages of $16,000,adjusted gross income of $18,000,and tax liability of $300 before the earned income credit.What is the amount of Alex's earned income credit for 2013,assuming his 5-year-old dependent son lived with him for the full year?

A)$0
B)$3,250
C)$3,171
D)$300
E)None of the above

Question 32

Steve goes to Tri-State University and pays $40,000 in tuition.Steve works a part-time job to pay for his schooling and has an AGI of $17,000.How much is his American Opportunity Credit?

A)$2,000
B)$2,500
C)$4,000
D)$1,000
E)He does not qualify for the American Opportunity Credit.

Question 33

For the 2013 tax year,Sally,who is divorced,reported the following items of income: Interest income $\quad$$\quad$$\$ 600$
Wages $\quad$$\quad$$\quad \$ 4,000$
Earnings from self-employment $\quad \$ 3,000$ She maintains a household for herself and her 1-year-old son who qualifies as her dependent.What is the earned income credit available to her for 2013,using the tables?

A)$1,029
B)$1,369
C)$2,389
D)$2,593
E)None of the above

Question 34

Clark,a widower,maintains a household for himself and his two dependent preschool children.For the year ended December 31,2013,Clark earned a salary of $36,000.He paid $3,500 to a housekeeper to care for his children in his home,and also paid $1,500 to a kiddie play camp for child care.He had no other income or expenses during 2013.How much can Clark claim as a child care credit in 2013?

A)$360
B)$840
C)$1,200
D)$1,440
E)None of the above

Question 35

Which of the following tax credits is not available for the 2013 tax year?

A)Foreign tax credits
B)Earned income credit
C)Adoption credit
D)Child and dependent care credit
E)All of the above are available credits

Question 36

The American Opportunity credit

A)Is 50 percent of the first $1,200 of tuition and fees paid and 100 percent of the next $1,200.
B)Is available for 2 years of post-secondary education.
C)Is fully refundable even if the credit exceeds the tax liability.
D)Is available for qualifying expenses paid on behalf of the taxpayer and his or her spouse,in addition to those paid for dependents.

Question 37

Keith has a 2013 tax liability of $2,250 before taking into account his American Opportunity credit.He paid $2,700 in qualifying expenses,was a full-time student,was not claimed as a dependent on his parents' return,and his American Opportunity credit was not subject to phase out.What is the amount of his American Opportunity credit allowed?

A)$2,175
B)$1,500
C)$1,350
D)$2,700
E)$0

Question 38

Curly and Rita are married,file a joint return,and have two dependent children,ages 11 and 13.Their AGI is $116,000.By how much is their child credit reduced in 2013?

A)$600
B)$300
C)$0
D)$900
E)$1,200

Question 39

Most states are community property states.

Question 40

Denice is divorced and files a single tax return claiming her two children,ages 7 and 9,as dependents.Her AGI for 2013 is $79,500.Denice's Child Credit for 2013 is:

A)$2,000
B)$250
C)$1,000
D)$750
E)$1,750

Question 41

William and Irma have two children,Tom,age 13,and Sara,age 8.For 2013,Tom and Sara have a total parental tax of $5,600.Tom's net unearned income is $15,000,while Sara's net unearned income is $5,000.How much of the parental tax would be allocated to Sara on her 2013 tax return?

A)$0
B)$1,400
C)$1,866
D)$2,800
E)None of the above

Question 42

Choose the correct statement:

A)A taxayer may receive a 30 percent credit for installing energy-efficient window shades.
B)A taxpayer may receive a 30 percent credit for installing a windmill,which generates electricity,at his vacation home.
C)A taxpayer may receive a 30 percent credit for installing a solar water-heating panel for his swimming pool.
D)A taxpayer may receive a 30 percent credit for the purchase of a plug-in electric vehicle.

Question 43

In 2013,which of the following children would have income taxed at their parents' rates?

A)A 13-year-old child with salary income of $12,000
B)A 12-year-old child with net unearned income of $2,000
C)A non-student,19-year-old child with net unearned income of $12,000
D)A 9-year-old child with salary income of $1,000
E)All of the above

Question 44

Which of the common deductions below are allowed for regular tax purposes but not for AMT purposes?

A)The interest deduction for up to $100,000 of home equity debt which is not used to purchase or improve part of a principal residence
B)Cash charitable contributions
C)Moving expenses
D)IRAs

Question 45

Which of the following types of income is not subject to the "kiddie tax?"

A)Interest income
B)Dividend income
C)Salary income
D)Capital gains on stock sales
E)All of the above are subject to the "kiddie tax"

Question 46

A parent may elect to include a child's income in the parent's return if:

A)The child is under age 18.
B)The child's income is only from interest and dividend distributions.
C)The child's gross income is more than $1,000 and less than $10,000.
D)All of the above must be met for a parent to elect to include a child's income in the parent's return.

Question 47

Glen and Mary have two children,Chad,age 12,and Linda,age 8.For 2013,Chad has $4,000 in net unearned income and Linda has net unearned income of $1,000.If the total parental tax for 2013 is $1,400,how would the tax be allocated between Chad and Linda?

A)$1,400 to Chad and $0 to Linda
B)$933 to Chad and $467 to Linda
C)$1,120 to Chad and $280 to Linda
D)$700 to Chad and $700 to Linda
E)None of the above

Question 48

Assume Karen is 12 years old and her only income is $2,500 of interest income from a bank account with money her parents have given her to save for college.What are the options Karen has for filing her tax return?

A)Karen must file a separate tax return and report all of her interest income at her separate rate of tax.
B)Karen must file a separate tax return and report all of her interest income at her parents' rate of tax.
C)Karen can file a separate tax return or her parents can elect to include her in their tax return,paying tax on $500 of her interest income at their rate of tax.
D)Karen can file a separate return or her parents can elect to include her in their tax return,paying tax on the full $2,500 of her interest income at their rate of tax.

Question 49

Which of the following itemized deductions may not be deducted in computing the individual alternative minimum tax?

A)Qualified home mortgage interest
B)State income taxes
C)Medical expenses limited to 10 percent of AGI)
D)Charitable deductions
E)All of the above

Question 50

Taxpayers are allowed two tax breaks for adoption expenses.They are allowed: $\text { Quali fied Expenses }$
$\begin{array}{lll}&\text { Paid personally }&\text { Paid by employer }\\\text { a. } & \text { Credit } & \text { Credit } \\\text { b. } & \text { Exclusion } & \text { Credit } \\\text { c. } & \text { Exclusion } & \text { Exclusion } \\\text { d. } & \text { Credit } & \text { Exclusion }\end{array}$

Question 51

In the case of the adoption of a child who is not a U.S.citizen or resident of the U.S. ,the credit for qualified adoption expenses is available:

A)In the first year the expenses are paid.
B)Each year expenses are paid.
C)In the last year expenses are paid.
D)In the year the adoption becomes final.

Question 52

Carla and Bob finalized an adoption in 2013.Their adoption fees totaled $9,500.They have AGI of $205,000 for 2013.What is their adoption credit?

A)$9,500
B)$12,650
C)$7,402
D)$7,025

Question 53

For 2013,which of the following is a tax adjustment or tax preference item for the individual AMT computation?

A)Deduction of charitable contribution of tangible personal property
B)IRA contribution deduction
C)Miscellaneous itemized deductions
D)Moving expense deduction
E)None of the above

Question 54

Which one of the following conditions must be satisfied in order for a married taxpayer to be taxed on only his income if he resides in a community property state?

A)The husband and wife must live apart for the entire year.
B)The husband and wife must live apart for more than half the year.
C)The husband and wife must be in the process of filing for a divorce.
D)Only one of the spouses can be working and earning an income.
E)None of the above.

Question 55

Which of the following is not a true statement regarding community property law?

A)For a married couple living in California,income derived from separate property is taxable to the owner of the property.
B)For a married couple living in Texas,income derived from separate property produces community income.
C)In all community property states,the salary of married spouses is allocated one-half to each spouse.
D)Colorado,Ohio,and Florida are community property states.
E)Property acquired before marriage in a community property state continues to be separate property.

Question 56

Which of the following is not an adjustment or tax preference item for 2013 for purposes of the individual alternative minimum tax AMT)?

A)State income tax refunds
B)Certain passive losses
C)Miscellaneous itemized deductions
D)Cash charitable contributions
E)All of the above are adjustment or tax preference items for AMT

Question 57

Molly and Steve are married and live in Texas.Molly earns a salary of $50,000 and Steve owns a rental property that gives him $35,000 of income.If they filed separate tax returns,what amount of income would Steve report?

A)$35,000
B)$85,000
C)$42,500
D)$60,000
E)None of the above

Question 58

Which of the following is true of the alternative minimum tax?

A)The alternative minimum tax is designed to ensure that high income taxpayers do not pay excessive amounts of income tax.
B)For 2013,the alternative minimum tax rates are 20 percent and 30 percent,depending on the taxpayer's income.
C)The amount of a taxpayer's state income tax may not be deducted for the purpose of computing the alternative minimum tax.
D)All tax-exempt interest is a tax preference item for the alternative minimum tax.
E)None of the above are true.

Question 59

Which of the common deductions below are allowed for both regular tax purposes and for AMT purposes?

A)The standard deduction
B)Personal and dependency exemptions
C)State income taxes,property taxes,and all other taxes deducted on Schedule A
D)Mortgage interest from the acquisition of a residence costing less than $1 million
E)Miscellaneous itemized deductions taken on Schedule A

Question 60

A tax credit is allowed for qualified adoption expenses paid by taxpayers:

A)And an additional credit is allowed for qualified adoption expenses paid for by taxpayers' employers.
B)And an income exclusion is allowed for qualified adoption expenses paid for by taxpayers' employers.
C)And is available each year qualifying expenses are incurred.
D)And is not subject to a phase-out based on adjusted gross income.

Question 61

Sheila and Jerry are married taxpayers with $600 of foreign tax withholding from the dividends in a
mutual fund.They have enough foreign income from the mutual fund to claim the full $600 as a foreign tax credit.They are in the highest tax bracket,35%,and they itemize deductions.Should they claim the foreign tax credit on the Form 1040 or a deduction for foreign taxes on their Schedule A? Why?

Question 62

Explain what type of education qualifies for the American Opportunity credit and what type of education qualifies for the lifetime learning credit.

Question 63

Martin and Rachel are married and have a 3-year-old child.Martin is going to medical school full-time for 12 months of the year and Rachel earns $45,000.Their child is in day care so Martin can go to school while Rachel is at work.The cost of their day care is $10,000.What is their child and dependent care credit? Please show your calculations and explain.

Question 64

Edward has business operations in Country F and Country G.He pays tax to Country F of $12,000 on
$30,000 of income and pays tax to Country G of $4,000 on $10,000 of income.In addition to the income from Country F and Country G,Edward has $100,000 of income from U.S.sources and a total U.S.tax liability,before the foreign tax credit,of $49,000.
What amount of foreign tax credit may Edward claim on his U.S.tax return?

Question 65

What is the maximum investment income a taxpayer is allowed to have and still be allowed to claim the earned income credit? Why is there an earned income credit in the law?

Question 66

Richard has $30,000 of income from a country that imposes a 40 percent income tax and $30,000 of income from a country that imposes a 30 percent income tax.In addition to the foreign income,he has taxable income from U.S.sources of $120,000 and a U.S.tax liability,before credits,of $53,450.The amount of Richard's foreign tax credit is:

Question 67

Daddy Warbucks is in the process of adopting Annie from a New York orphanage.He pays $5,000 in 2011,$7,000 in 2012,and $4,500 in 2013.Daddy Warbucks' AGI for 2013 is $165,000.
a.How much is the adoption credit that Daddy Warbucks may claim for 2013 if the adoption becomes final in 2013?
b.How much is the adoption credit that Daddy Warbucks may claim for 2013 if the adoption becomes final in 2014?
c.How much is the adoption credit that Daddy Warbucks may claim for 2013 if the adoption falls through and is never finalized?

Question 68

Jenny adopts a Vietnamese orphan.The adoption takes 3 years,two trips to Vietnam,and becomes final in 2013.She pays $10,000 in 2011,$5,000 in 2012,and $5,000 in 2013 of qualified adoption expenses.She has AGI of $150,000.
a.What is the adoption credit Jenny can claim in 2013?
b.How much credit could she claim if the adoption falls through and is never finalized?

Question 69

Calculate the child credits for the following taxpayers.Please show your work.
a.Ninfa is a single mother with 8-year-old and 9-year-old dependent sons and has $50,000 of AGI.
b.Sharon and Mark have one dependent 2-year-old child and $125,100 of AGI.
c.Carol is single and has one dependent 18-year-old son.

Question 70

Jasmine is a single marketing manager with a college degree.She continually updates her marketing knowledge and gets fresh ideas by taking classes at the local community college.This year she spent
$1,500 on course tuition and fees.If Jasmine has AGI of $55,000,how much lifetime learning credit can she claim on her tax return? Explain.

Question 71

In 2013,Erin purchased a solar system to generate electricity for her home,at a cost of $5,000.
a.How much is her tax credit in 2013?
b.If she had purchased a solar heating system for her swimming pool at a cost of $3,500,how much could she claim as a tax credit?
c.If she had purchased a $5,000 solar electric system and a $4,500 solar heating system for her principal home not for the swimming pool),how much could she claim as a tax credit?
d.If she had purchased the electric system for her principal residence and the solar heating system for a second residence,how much could she claim as a tax credit?

Question 72

Marion has an 11-year-old daughter.Please calculate her child and dependent care credit under these two alternatives:
a.Marion pays $4,000 a year in day care costs.Her salary is $30,000.
b.Marion pays $8,000 a year in day care costs.Her salary is $80,000.

Question 73

In 2013,Brady purchases a 2013 Nissan Leaf electric vehicle for his personal use.He is eligible to claim a credit of $7,500.He is in the 35 percent marginal tax bracket and his regular
tax liability before credits is $14,800.What is the tax benefit Brady realizes from this purchase?

Question 74

Jeff is a stay-at-home father who earns $500 from odd jobs and takes care of his daughter.His wife,Michelle,is the bread-winner and brings in $60,000 of income a year.In addition to the care provided by Jeff,Michelle pays $4,500 in child care.
In the current year,how much are Jeff and Michelle's qualifying expenses for the child care credit?

Question 75

Arthur is divorced with two dependent children,ages 8 and 13.His adjusted gross income for 2013 is
$30,000,and he incurs qualified child care expenses of $6,000,$3,000 for each child.
a.What is the amount of Arthur's qualified child care expenses after any limitation?
b.Calculate the amount of Arthur's child care credit for 2013.

Question 76

Lee and Pat are married taxpayers living in Louisiana.Lee earns wages of $40,000 and has $5,000 of dividend income from separate property.Lee and Pat have interest income from community property of $10,000.If Lee and Pat file separate income tax returns,what amount of income must be included on Lee's separate tax return?

A)$50,000
B)$30,000
C)$27,500
D)$25,000
E)None of the above

Question 77

For 2013,Beatrice qualifies for the earned income credit.She has one daughter who is 7 years old.Her earned income and adjusted gross income for 2013 are $6,000.
a.Using the EIC tables,calculate the amount of her 2013 earned income credit.
b.Calculate the amount of Beatrice's 2013 earned income credit assuming her earned income for 2013 is $8,200 and her adjusted gross income is $10,000.

Question 78

John graduates from high school in 2013 and enrolls in a private college in the fall.His parents pay
$10,000 for his tuition and fees.
a.Assuming John's parents have AGI of $46,000,what is the American Opportunity credit they can claim for John? Explain.
b.Assuming John's parents have AGI of $170,000,what is the American Opportunity credit they can claim for John? Explain.

Question 79

Maxine is a 29-year-old single mother.Her tax liability before credits is $1,000 and her earned income credit is $2,500.How much earned income credit will be refunded to Maxine? Explain.

Question 80

Jeff and Geri are married and have AGI of $95,000 and three young children.Geri pays $6,000 a year to day care providers so she can teach a yoga class and do household errands.Geri earns $4,000 teaching the yoga class.How much child and dependent care credit can Jeff and Geri claim? Why?