Deck 13: Tax Credits and Payment Procedures

Question 1

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

Answer 1

False

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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 14

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

Question 15

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

Question 16

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

Question 17

All taxpayers are eligible to take the basic research credit.

Question 18

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 19

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

Question 20

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

Question 21

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

Question 22

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 23

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, which qualifies for the disabled access credit.

Question 24

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 25

A small employer incurs $31,500 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 26

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

Question 27

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

Question 28

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 29

Only married taxpayers with children can claim the earned income credit.

Question 30

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

Question 31

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

Question 32

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 33

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 34

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

Question 35

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 36

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

Question 37

A taxpayer's earned income credit may be determined by the number of his or her qualifying children.

Question 38

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 39

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

Question 40

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

Question 41

Molly has generated general business credits over the years that have not been utilized.The amounts generated and not utilized equal: $$\begin{array} { l r } 2015 & \$ 2,500 \\2016 & 7,500 \\2017 & 5,000 \\2018 & 4,000\end{array}$$ In the current year, 2019, her business generates an additional $15,000 general business credit.In 2019, based on her tax liability before credits, she can utilize a general business credit of up to $20,000.After utilizing the carryforwards and the current year credits, how much of the general business credit generated in 2019 is available for future years?

A)$0.
B)$1,000.
C)$14,000.
D)$15,000.

Question 42

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

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

Question 43

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 these.

Question 44

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 45

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 these are components of the general business credit.

Question 46

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 these credits are refundable.

Question 47

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 48

During the year, Green, Inc., incurs the following research expenditure. $\begin{array}{llcc} \text { In-house wages, supplies, computer time } &\$60,000\\ \text { Paid to Blue Foundation for research } &30,000\\\end{array}$ Green's qualifying research expenditures for the year are:

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

Question 49

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

Question 50

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

Question 51

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 52

Which of the following correctly describes the tax credit for rehabilitation expenditures?

A)The cost of enlarging any existing business building is a qualifying expenditure.
B)The cost of facilities related to the building (e.g., a parking lot) is a qualifying expenditure.
C)No recapture provisions apply.
D)No credit is allowed for the rehabilitation of a nonhistoric structure.

Question 53

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

Question 54

Ahmad is considering making a $10,000 investment in a venture whose promoter promises will generate immediate tax benefits for him.Ahmad, who normally itemizes his deductions, is in the 32% 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 is likely 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)$3,200, take the itemized deduction.
D)Both options produce the same benefit.

Question 55

Black Company paid wages of $180,000 of which $40,000 was qualified 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 56

In March 2019, 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 2019.Gray's work opportunity tax credit amounts for 2019 is:

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

Question 57

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

Question 58

Cardinal Corporation hires two persons who are certified to be eligible employees for the work opportunity tax credit under the general rules (e.g., food stamp recipients), each of whom is paid $9,000 during the year.As a result of this event, Cardinal Corporation may claim a work opportunity credit of:

A)$1,440.
B)$2,880.
C)$4,800.
D)$7,200.

Question 59

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

Question 60

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

Question 61

Harry and Wei 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 Wei) and report two dependent children.During the year, they pay the following amounts to care for their four-year old son and six-year old daughter while they work. $$\begin{array} { l r } \text { ABC Day Care Center } & \$ 3,200 \\\text { Blue Ridge Housekeeping Services } & 2,000 \\\text { Mindy Mason (Harry's mother) } & 1,000\end{array}$$ Harry and Wei may claim a credit for child and dependent care expenses of:

A)$840.
B)$1,040.
C)$1,200.
D)$1,240.

Question 62

Cheryl is single, has one child (age six), and files as head of household during 2019.Her salary for the year is $19,500.She qualifies for an earned income credit of the following amount.

A)$0.
B)$3,426.
C)$3,451.
D)$3,526.

Question 63

In terms of the withholding procedures, which statement does not reflect current rules?

A)Penalties can be imposed for filing false information with respect to wage withholding.
B)An employer need not verify the number of exemptions claimed by an employee on Form W-4 (Employee's Withholding Allowance Certificate).
C)An employee may claim fewer than the number of withholding allowances allowed but not more.
D)In preparing the income tax return for the year, the employee is bound by the number of exemptions claimed for withholding purposes.

Question 64

Identify the following statement that is false.

A)If an employer is not required to withhold income taxes from an employee's wages, the wages are not taxable to the employee.
B)In certain situations, income tax withholding by an employer is voluntary.
C)An employer must deposit with the government an amount of FICA tax that is twice the amount withheld from the employee's salary (i.e., the employee's and employer's shares).
D)If an excess amount of FICA is withheld for an employee because the employee has multiple jobs, the employee may claim a credit for the excess amount withheld on his or her income tax return.
E)None of these statements is false.

Question 65

An employer calculates the amount of income tax withheld from salary or wages based on the information an employee provides on the:

A)Form W-2.
B)Form W-3.
C)Form W-4.
D)Form 941.

Question 66

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, each makes a $2,000 contribution to his or her traditional IRA.If their AGI is $35,000 on their joint return, what is the amount of their "saver's credit" for certain retirement plan contributions?

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

Question 67

During 2019, 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)$189.
C)$340.
D)$529.

Question 68

Which of the following, if any, 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.

Question 69

Rex and Dena are married and have two children, Michelle (age seven) and Nancy (age five).During 2019, Rex earned a salary of $26,500, 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)$5,411.
C)$5,474.
D)$5,828.

Question 70

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 these statements are correct.

Question 71

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 72

Bob and Sally are married, file a joint tax return, report AGI of $120,000, and have two children.Del is beginning her freshman year at State College during fall 2019, and Owen is beginning his senior year at Southwest University during fall 2019.Owen completed his junior year during the spring semester of 2018 (i.e., he took a "leave of absence" during the 2018-2019 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 and Owen's qualifying tuition expenses were $6,100 for the fall 2019 semester.Del's room and board costs were $3,200 for the fall semester.Owen did not incur room and board costs because 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 2019.Compute the available education tax credits for Bob and Sally for 2019.

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

Question 73

Kevin and Shuang 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 Shuang earned a salary of $18,000.What is the amount of the couple's credit for child and dependent care expenses?

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

Question 74

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

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

Question 75

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 2019, and Arethia is beginning her senior year at Northeast University during fall 2019 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 and Arethia's qualifying tuition expenses and fees total $6,200 for each semester during 2019.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 2019 is:

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

Question 76

In 2019, 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 77

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 and the lifetime learning credit is available per eligible student.
D)Continuing education expenses do not qualify for either education credit.
E)None of these statements is true.

Question 78

In the renovation of its building, Green Company 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 79

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 these issues needs to be resolved.
E)None of these is relevant to the employer.

Question 80

In describing FICA taxes, which (if any) of the following statements is incorrect?

A)The base amounts for 2020 probably will increase from the 2019 amounts.
B)The base amounts for the Social Security and Medicare portions are the same.
C)If both spouses work, excess FICA taxes need not result.
D)Excess FICA taxes can be claimed as an income tax credit.