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Exam 12: Tax Credits and Payments

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Question 61

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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.

F) None of the above
G) B) and D)

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Question 62

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Dabney and Nancy are married,both gainfully employed,and have two children who are 3 and 6 years old.Dabney's salary is $35,000 while Nancy's salary is $40,000.During the year,they spend $7,000 for child care expenses that are required so both of them can work outside of the home.Calculate the credit for child and dependent care expenses.

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For two or more qualifying children,the ...

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Question 63

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Cheryl is single,has one child (age 6) ,and files as head of household during 2016.Her salary for the year is $19,500.She qualifies for an earned income credit of the following amount.

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

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.

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

Susan generated $55,000 of net earnings from the conduct of a tax preparation business that she operated during the tax-filing season.She also received wages of $77,000 from her full-time job.Compute the self-employment taxes due for 2017.

In 2016,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 2017.Which of the following choices properly reflects the amounts and years in which the adoption expenses credit is available. 2016 2017

During the year,Green Corporation (a U.S.corporation) has U.S.-source income of $750,000 and foreign income of $500,000.The foreign-source income generates foreign income taxes of $240,000.The U.S.income tax before the foreign tax credit is $425,000.Green Corporation's foreign tax credit is:

Several years ago,Tom purchased a structure for $300,000 that was placed in service in 1929.Three and one-half years ago he incurred qualifying rehabilitation expenditures of $600,000.In the current year,Tom sold the property in a taxable transaction.Calculate the amount of the recapture of the tax credit for rehabilitation expenditures.

An expatriate who works in a country with an income tax rate higher than the U.S.rate probably will find the foreign earned income exclusion preferable to the foreign tax credit.

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

Refundable tax credits include the:

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

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:

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.

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.

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