Question 1

ChocoHealth Inc.is developing new chocolate products providing abundant health benefits at low calorie counts.For the past three years,it spent an average of $500,000 per year on research.ChocoHealth has spent $900,000 on research.The company has elected the simplified credit.For the current year,it will earn a research credit of

Accepted Answer

D)[$900,000 - (50% × $500,000)× .14]= $91,000.

Question 2

A taxpayer will be ineligible for the earned income credit if he or she has disqualified investment income of more than $3,400 in 2015.Disqualified income includes all the following except

Accepted Answer

Disqualified investment income includes interest, dividends, net rental income, net capital gains, and royalties. Self-employment income is not considered investment income and therefore is not included in the calculation of disqualified income.

Question 3

Dwayne has general business credits totaling $30,000 before limitation.His regular tax liability is $83,000 and his tentative minimum tax is $79,000.What amount of general business credit can Dwayne take this year?

Accepted Answer

The answer of Dwayne has general business credits totaling $30,000...

Question 4

Carlotta,Inc.has $50,000 foreign-source income and $150,000 worldwide income.Its U.S.tax on its worldwide income is $42,000 and it paid foreign taxes of $12,000.What is the corporation's foreign tax credit?

Accepted Answer

B)The foreign taxes paid of $12,000 are lower than the limitation of $14,000.[(50,000/150,000)× 42,000] =$14,000

Question 5

The general business credit includes all of the following with the exception of

Accepted Answer

The general business credit includes a variety of tax credits that businesses can claim, such as the research credit, disabled access credit, and credit for rehabilitation expenditure. However, the foreign tax credit is a separate credit that allows taxpayers to offset US taxes by the amount of income taxes paid to foreign countries, and is not included in the general business credit.

Question 6

All of the following statements are true regarding the Lifetime Learning Credit except which one?

Accepted Answer

The answer of All of the following statements are true...

Question 7

Current year foreign taxes paid exceed the ceiling based on U.S.tax attributable to foreign source income.These excess foreign tax credits

Accepted Answer

The answer of Current year foreign taxes paid exceed the...

Question 8

Individuals without children are eligible for the earned income credit if they meet all the following conditions except

Accepted Answer

Individuals without children can be eligible for the earned income credit if they meet all the conditions, except they cannot file married filing separately.

Question 9

Which of the following is not a qualifying property for the residential energy efficient property (REEP)credit?

Accepted Answer

Geothermal heat pumps, residential wind property, and solar hot water heaters are all qualifying properties for the REEP credit. However, metal or asphalt roofs with special coatings do not qualify for this credit.

Question 10

A corporation has $100,000 of U.S.source taxable income and $300,000 of foreign source taxable income from countries X and Y for a total worldwide taxable income of $400,000.Countries X and Y levy a total of $60,000 in foreign taxes upon the foreign source taxable income.U.S.taxes before credits are $140,000.The foreign tax credit limitation is

Accepted Answer

B)Foreign tax credit equals the lesser of foreign taxes paid or accrued ($60,000)or the portion of the U.S.income tax liability attributable to income earned in all foreign countries ($300,000/$400,000 × $140,000 = $105,000).

Question 11

Runway Corporation has $2 million of gross receipts in the preceding year.For purposes of the disabled access credit,what is the maximum number of full-time employees the corporation can have in the preceding year?

Accepted Answer

The answer of Runway Corporation has $2 million of gross...

Question 12

Which of the following expenditures will qualify as a research expenditure for purposes of the research credit?

Accepted Answer

Only option A qualifies as a research expenditure because it involves development of new technology or processes related to the ice cream production. Options B and C involve marketing and design expenses which do not qualify as research expenditures for the research credit.

Question 13

In the fall of 2015,Gina went back to school to earn a master of taxation degree.She incurred $7,000 of qualified educational expenses and her modified AGI for the year was $57,000.Her Lifetime Learning Credit is

Accepted Answer

The Lifetime Learning Credit is 20% of the first $10,000 of qualified education expenses. Therefore, 20% of $7,000 is $1,400. However, since her modified AGI is $57,000, she is eligible for the full credit without any phase-out reduction, so the correct amount is $1,400.

Question 14

Layla earned $20,000 of general business credits from her sole proprietorship.Her regular tax liability is $45,000,and her tentative minimum tax is $49,000.During the current year Layla will apply general business credits of

Accepted Answer

The answer of Layla earned $20,000 of general business credits...

Question 15

Kerry is single and has AGI of $25,000 in 2015.During the year he contributes $5,000 to his Roth IRA.What is the amount of qualified retirement savings contributions credit to which he is entitled?

Accepted Answer

The qualified retirement savings contributions credit is a tax credit that is available to individuals who make contributions to a qualified retirement plan, such as a Roth IRA. The credit is equal to 10% of the amount of the contribution, up to a maximum of $1,000. In this case, Kerry contributed $5,000 to his Roth IRA, so he is entitled to a credit of $500.

Question 16

In the fall of 2015,James went back to school to earn a master of accountancy degree.He incurred $7,000 of qualified educational expenses and his modified AGI for the year was $40,000.His Lifetime Learning Credit is

Accepted Answer

The Lifetime Learning Credit is 20% of the first $10,000 of qualified education expenses. Therefore, 20% of $7,000 is $1,400.

Question 17

The general business credit may not exceed the net income tax minus the greater of the tentative minimum tax or

Accepted Answer

According to the Internal Revenue Code, the general business credit cannot exceed the net income tax minus the greater of the tentative minimum tax or 25% of the net regular tax liability above $25,000. Therefore, option D is the correct answer.

Question 18

Kors Corporation has 30 employees and $5 million of gross receipts.Kors spends $15,000 for qualified structural improvements for access for the disabled.The disabled access credit is

Accepted Answer

The answer of Kors Corporation has 30 employees and $5...

Question 19

Octo Corp.purchases a building for use in its business at a cost of $100,000.The building was built in 1930 and needs substantial work so it can be used.Octo spends $150,000 on qualifying renovations.Octo will earn a rehabilitation credit of

Accepted Answer

A)The $150,000 expenditure qualifies as it exceeds $5,000 and the cost of the building.The credit rate is 10%.

Question 20

Carlotta,Inc.has $50,000 foreign-source income and $150,000 worldwide income.Its U.S.tax on its worldwide income is $42,000 and it paid foreign taxes of $16,000.What is the corporation's foreign tax credit?

Accepted Answer

The foreign tax credit is calculated by taking the lesser of the foreign taxes paid or the U.S. tax on foreign income. In this case, the U.S. tax on foreign income would be $15,000 (30% of $50,000) and the foreign taxes paid were $16,000. Therefore, the foreign tax credit is $14,000 (the lesser of the two).

Quiz 28: Special Tax Computation Methods,tax Credits,and Payment of Tax