Deck 13: Tax Credits and Payment Procedures

Question 1

The work opportunity tax credit is available only for wages paid to qualifying individuals during their first year of employment.

Answer 1

False

Question 2

Any unused general business credit must be carried back 3 years and then forward for 20 years.

Answer 2

False

Question 3

The tax benefit received from a tax credit is never affected by the tax rate of the taxpayer.

Answer 3

True

Question 4

Qualified rehabilitation expenditures include the cost of acquiring the building, but not the cost of acquiring the land.

Question 5

Nonrefundable credits are those that reduce the taxpayer's tax liability but are not paid when the amount of the credit or credits) exceeds the taxpayer's tax liability.

Question 6

An employer's tax deduction for wages is affected by the work opportunity tax credit.

Question 7

The disabled access credit was enacted to encourage small businesses to make their businesses more accessible to disabled individuals.

Question 8

The credit for child and dependent care expenses is an example of a refundable credit.

Question 9

The tax credit for rehabilitation expenditures for certified historic structures differs from that for qualifying structures that are not certified historic structures.

Question 10

Some or all) of the tax credit for rehabilitation expenditures will have to be recaptured if the rehabilitated property is disposed of prematurely or if it ceases to be qualifying property.

Question 11

Employers are encouraged by the work opportunity tax credit to hire individuals who have been long-term recipients of family assistance welfare benefits.

Question 12

The tax benefits resulting from tax credits and tax deductions are affected by the tax rate bracket of the taxpayer.

Question 13

All taxpayers are eligible to take the basic research credit.

Question 14

The purpose of the tax credit for rehabilitation expenditures is to encourage the relocation of businesses from older, economically distressed areas i.e., inner city) to newer locations.

Question 15

The incremental research activities credit is 20% of the qualified research expenses that exceed the base amount.

Question 16

The purpose of the work opportunity tax credit is to encourage employers to hire individuals from specified target groups traditionally subject to high rates of unemployment.

Question 17

Qualified research and experimentation expenditures are not only eligible for the 20% tax credit, but also can be expensed in the year incurred.

Question 18

The low-income housing credit is available to low-income tenants who reside in qualifying low-income housing.

Question 19

A taxpayer who qualifies for the low-income housing credit claims the credit over a 20-year period.

Question 20

A LIFO method is applied to general business credit carryovers, carrybacks, and utilization of credits earned during a particular year.

Question 21

The child tax credit is based on the number of the taxpayer's qualifying children under age 17.

Question 22

The disabled access credit is computed at the rate of 50% of all access expenditures incurred by the taxpayer during the year.

Question 23

Child and dependent care expenses include amounts paid for general household services.

Question 24

The maximum child tax credit under current law is $1,500 per qualifying child.

Question 25

Cardinal Company incurs $800,000 during the year to construct a facility that will be used exclusively for the care of its employees' pre-school age children during normal working hours. Assuming Cardinal claims the credit for employer-provided child care this year, its basis in the newly constructed facility is $640,000.

Question 26

An individual generally may claim a credit for adoption expenses in the year in which the expenses are paid.

Question 27

For purposes of computing the credit for child and dependent care expenses, the qualifying employment-related expenses are limited to an individual's actual or deemed earned income.

Question 28

The earned income credit, a form of a negative income tax, is a refundable credit.

Question 29

The earned income credit is available only if the taxpayer has at least one qualifying child in the household.

Question 30

A taxpayer who meets the age requirement and receives no Social Security benefits will be entitled to the full tax credit for the elderly.

Question 31

A taxpayer may qualify for the credit for child and dependent care expenses if the taxpayer's dependent is under age 17.

Question 32

The maximum credit for child and dependent care expenses is $2,100 if only one spouse is employed and the other spouse is a full-time student.

Question 33

Expenses that are reimbursed by a taxpayer's employer under a dependent care assistance program also can qualify for the credit for child and dependent care expenses.

Question 34

A taxpayer's earned income credit is dependent on the number of his or her qualifying children.

Question 35

A small employer incurs $1,500 for consulting fees related to establishing a qualified retirement plan for its 75 employees. As a result, the employer may claim the credit for small employer pension plan startup costs for $750.

Question 36

If the cost of a building constructed and placed into service by an eligible small business in the current year includes the cost of a wheelchair ramp, the cost of the ramp qualifies for the disabled access credit.

Question 37

BlueCo incurs $900,000 during the year to construct a facility that will be used exclusively for the care of its employees' pre-school age children during normal working hours. The credit for employer-provided child care available to BlueCo this year is $225,000.

Question 38

Child care payments to a relative are not eligible for the credit for child and dependent care expenses if the relative is a child under age 19) of the taxpayer.

Question 39

Unless a taxpayer is disabled, the tax credit for the elderly or disabled is available only if the taxpayer is at least 59 1/2 years old.

Question 40

Only married taxpayers with children are qualified to receive the earned income credit.

Question 41

Which of the following best describes the treatment applicable to unused business credits?

A) Unused amounts are carried forward indefinitely.
B) Unused amounts are first carried back one year and then forward for 20 years.
C) Unused amounts are first carried back one year and then forward for 10 years.
D) Unused amounts are first carried back three years and then carried forward for 15 years.

Question 42

Ahmad is considering making a $10,000 investment in a venture which its promoter promises will generate immediate tax benefits for him. Ahmad, who normally itemizes his deductions, is in the 28% marginal tax bracket. If the investment is of a type where the taxpayer may claim either a tax credit of 25% of the amount of the expenditure or an itemized deduction for the amount of the investment, what treatment normally would be most beneficial to Ahmad and by how much will Ahmad's tax liability decline because of the investment?

A) $0, take neither the itemized deduction nor the tax credit.
B) $2,500, take the tax credit.
C) $2,800, take the itemized deduction.
D) Both options produce the same benefit.
E) None of the above.

Question 43

In March 2018, Gray Corporation hired two individuals, both of whom were certified as long-term recipients of family assistance benefits. Each employee was paid $11,000 during 2018. Gray Corporation's work opportunity tax credit amounts for 2018 is:

A) $2,400.
B) $4,800.
C) $6,000.
D) $12,000.

Question 44

Refundable tax credits include the:

A) Foreign tax credit.
B) Tax credit for rehabilitation expenses.
C) Credit for certain retirement plan contributions.
D) Earned income credit.
E) None of the above is refundable.

Question 45

Black Company paid wages of $180,000, of which $40,000 was qualified wages for the work opportunity tax credit under the general rules. Black Company's deduction for wages for the year is:

A) $140,000.
B) $164,000.
C) $166,000.
D) $180,000.

Question 46

Roger is considering making a $6,000 investment in a venture that its promoter promises will generate immediate tax benefits for him. Roger, who does not anticipate itemizing his deductions, is in the 30% marginal income tax bracket. If the investment is of a type that produces a tax credit of 40% of the amount of the expenditure, by how much will Roger's tax liability decline because of the investment?

A) $0
B) $1,800
C) $2,200
D) $2,400
E) None of the above

Question 47

Only self-employed individuals are required to make estimated tax payments.

Question 48

The base amount for the Social Security portion old age, survivors, and disability insurance) is different from that for the Medicare portion of FICA.

Question 49

Juan refuses to give the bank where he maintains a savings account his Social Security number. Juan is subject to backup withholding for the interest earned on the savings account.

Question 50

Certain high-income individuals are subject to three additional Medicare taxes-on wages, unearned income, and tax credits claimed.

Question 51

The education tax credits i.e., the American Opportunity credit and the lifetime learning credit) are available to help defray the cost of higher education regardless of the income level of the taxpayer.

Question 52

An employee with outside income may be able to avoid the penalty for underpayment of estimated tax by having his employer increase income tax withholdings.

Question 53

In the event that overwithholding of FICA tax occurs because the taxpayer has more than one employer, the excess amount should be claimed as a credit on the Federal income tax return of the employee.

Question 54

The additional Medicare taxes assessed on high-income individuals carry differing tax rates depending on the tax base.

Question 55

John owns and operates a real estate agency as a sole proprietor. On a full-time basis, he employs his 17-year old daughter as a receptionist and his 22-year old son as a bookkeeper. Both children are subject to FICA withholding.

Question 56

Several years ago, Sarah purchased a certified historic structure for $150,000 that was placed in service in 1929. In the current year, she incurred qualifying rehabilitation expenditures of $200,000. The amount of the tax credit for rehabilitation expenditures, and the amount by which the building's basis for cost recovery would increase as a result of the rehabilitation expenditures are the following amounts.

A) $20,000 credit, $180,000 basis.
B) $40,000 credit, $200,000 basis.
C) $40,000 credit, $350,000 basis.
D) $40,000 credit, $160,000 basis.

Question 57

Qualifying tuition expenses paid from the proceeds of a tax-exempt scholarship do not give rise to an education tax credit.

Question 58

Both education tax credits are available for qualified tuition expenses, and in certain instances, also may be available for room and board.

Question 59

If an employee holds two jobs during the year, an overwithholding of FICA tax always will result.

Question 60

The components of the general business credit include all of the following except:

A) Credit for employer-provided child care.
B) Disabled access credit.
C) Research activities credit.
D) Tax credit for rehabilitation expenditures.
E) All of the above are components of the general business credit.

Question 61

Harry and Wilma are married and file a joint income tax return. On their tax return, they report $44,000 of adjusted gross income $20,000 salary earned by Harry and $24,000 salary earned by Wilma) and claim two exemptions for their dependent children. During the year, they pay the following amounts to care for their 4-year old son and 6-year old daughter while they work. ABC Day Care Center
$3,200
Blue Ridge Housekeeping Services
2,000
Mrs) Mason Harry's mother)
1,000
Harry and Wilma may claim a credit for child and dependent care expenses of:

A) $840.
B) $1,040.
C) $1,200.
D) $1,240.
E) None of the above.

Question 62

Cheryl is single, has one child age 6), and files as head of household during 2018. Her salary for the year is $19,500. She qualifies for an earned income credit of the following amount.

A) $0.
B) $3,298.
C) $3,327.
D) $3,461.

Question 63

Jermaine and Kesha are married, file a joint tax return, have AGI of $82,500, and have two children. Devona is beginning her freshman year at State University during Fall 2018, and Arethia is beginning her senior year at Northeast University during Fall 2018 after having completed her junior year during the spring of that year. Both Devona and Arethia are claimed as dependents on their parents' tax return. Devona's qualifying tuition expenses and fees total $4,000 for the fall semester, while Arethia's qualifying tuition expenses and fees total $6,200 for each semester during 2018. Full payment is made for the tuition and related expenses for both children during each semester. The American Opportunity credit available to Jermaine and Kesha for 2018 is:

A) $2,500.
B) $3,000.
C) $5,000.
D) $6,000.

Question 64

Which, if any, of the following correctly describes the research activities credit?

A) The research activities credit is the greater of the incremental research credit, the basic research credit, or the energy research credit.
B) If the research activities credit is claimed, no deduction is allowed for research and experimentation expenditures.
C) The credit is not available for research conducted outside the United States.
D) All corporations qualify for the basic research credit.
E) None of the above is correct.

Question 65

Kevin and Sue have two children, ages 8 and 14. They spend $6,200 per year on eligible employment related expenses for the care of their children after school. Kevin earned a salary of $20,000 and Sue earned a salary of $18,000. What is the amount of the credit for child and dependent care expenses?

A) $690
B) $713
C) $1,380
D) $1,426

Question 66

Which of the following statements regarding the adoption expenses credit is not true?

A) The adoption expenses credit is a nonrefundable credit.
B) The adoption expenses credit starts to be phased out in 2018 beginning when a taxpayer's modified AGI exceeds $207,140.
C) No adoption expenses credit is a available in 2018 if a taxpayer's modified AGI exceeds $247,140
D) The adoption expenses credit is limited to no more than $14,000 per eligible child in 2018.
E) All of the above statements are true.

Question 67

Green Company, in the renovation of its building, incurs $9,000 of expenditures that qualify for the disabled access credit. The disabled access credit is:

A) $8,750.
B) $4,500.
C) $4,375.
D) $4,250.

Question 68

During 2018, Barry who is single and has no children) earned a salary of $13,100. He is age 30. His earned income credit for the year is:

A) $0.
B) $176.
C) $353.
D) $519.

Question 69

Which of the following statements concerning the credit for child and dependent care expenses is not correct?

A) A taxpayer is not allowed both an exclusion from income and the credit for child and dependent care expenses on the same amount.
B) A taxpayer is not allowed both a deduction as a medical expense and the credit for child and dependent care expenses on the same amount.
C) If a taxpayer's adjusted gross income exceeds $43,000, the rate for the credit for child and dependent care expenses is 20%.
D) If a taxpayer's adjusted gross income exceeds $15,000 but is not over $17,000, the rate for the credit for child and dependent care expenses is 35%.
E) All of the above statements are correct.

Question 70

In 2018, George and Martha are married and file a joint tax return claiming their two children, ages 10 and 8 as dependents. Assuming their AGI is $119,650, George and Martha's child tax credit is:

A) $0.
B) $2,000.
C) $3,000.
D) $4,000.

Question 71

During the year, Green, Inc., incurs the following research expenditures: Inthouse wages, supplies, computer time $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\$ 60,000$
Paid to Blue Foundation for research $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ 30,000 Green's qualifying research expenditures for the year are:

A) $60,000.
B) $75,000.
C) $79,500.
D) $90,000.

Question 72

Which of the following statements is true regarding the education tax credits?

A) The lifetime learning credit is available for qualifying tuition and related expenses incurred by students pursuing only graduate degrees.
B) The American Opportunity credit permits a maximum credit of 20% of qualified expenses up to $10,000 per year.
C) The American Opportunity credit is calculated per taxpayer, while the lifetime learning credit is available per eligible student.
D) Continuing education expenses do not qualify for either education credit.
E) None of the above statements is true.

Question 73

In 2017, Juan and Juanita incur $9,800 in legal and adoption fees directly related to the adoption of an infant son born in a nearby state. Over the next year, they incur another $4,500 of adoption expenses. The adoption becomes final in 2018. Which of the following choices properly reflects the amounts and years in which the adoption expenses credit is available.

Question 74

Realizing that providing for a comfortable retirement is up to them, Jim and Julie commit to making regular contributions to their IRAs, beginning this year. Consequently, they each make a $2,000 contribution to their traditional IRA. If their AGI is $35,000 on their joint return, what is the amount of their credit for certain retirement plan contributions?

A) $2,000
B) $1,000
C) $400
D) $200

Question 75

George and Jill are husband and wife, ages 67 and 65 respectively. During the year, they receive Social Security benefits of $4,000 and have adjusted gross income of $11,000. Assuming they file a joint return, their tax credit for the elderly, before considering any possible limitation due to their tax liability, is:

A) $1,125.
B) $750.
C) $450.
D) $375.

Question 76

Which of the following issues does not need resolution in an employer's effort to comply with employment tax payment requirements?

A) Ascertaining which employees and wages are covered by employment taxes and are subject to withholding for income taxes.
B) Arriving at the amount to be paid and/or withheld.
C) Reporting and paying employment taxes and income taxes withheld to the IRS on a timely basis through the use of proper forms.
D) Each of the above issues needs to be resolved.
E) None of the above is relevant to the employer.

Question 77

Which, if any, of the following correctly describes the earned income credit?

A) Would be available regardless of the amount of the taxpayer's adjusted gross income.
B) Not available to a surviving spouse.
C) A taxpayer must have a qualifying child to take advantage of the credit.
D) Is a refundable credit.

Question 78

Amber is in the process this year of renovating the office building placed in service in 1976) used by her business. Because of current Federal Regulations that require the structure to be accessible to handicapped individuals, she incurs an additional $11,000 for various features, such as ramps and widened doorways, to make her office building more accessible. The $11,000 incurred will produce a disabled access credit of what amount?

A) $0
B) $5,000
C) $5,125
D) $5,500

Question 79

Bob and Sally are married, file a joint tax return, report AGI of $118,000, and have two children. Del is beginning her freshman year at State College during Fall 2018, and Owen is beginning his senior year at Southwest University during Fall 2018. Owen completed his junior year during the Spring semester of 2017 i.e., he took a "leave of absence" during the 2017-2018 school year). Both Del and Owen are claimed as dependents on their parents' tax return. Del's qualifying tuition expenses and fees total $5,000 for the Fall semester, while Owen's qualifying tuition expenses were $6,100 for the Fall 2018 semester. Del's room and board costs were $3,200 for the Fall semester. Owen did not incur room and board costs, as he lived with his aunt and uncle during the year.
Full payment is made for the tuition and related expenses for both children at the beginning of each semester. In addition to the children's college expenses, Bob also spent $3,000 on professional education seminars during the year in order to maintain his license as a practicing dentist. Bob attended the seminars during July and August 2018.
Compute the available education tax credits for Bob and Sally for 2018.

A) $3,100
B) $5,000
C) $5,480
D) $5,600

Question 80

Rex and Dena are married and have two children, Michelle age 7) and Nancy age 5). During 2018, Rex earned a salary of $24,500, received interest income of $300, and filed a joint income tax return with Dena. Dena had $0 gross income. Their earned income credit for the year is:

A) $0.
B) $5,426.
C) $5,621.
D) $5,716.