SU 8 - Tax Credit and Payments
Which of the following is a medical deduction? A) Health club dues advised by your doctor. B) None of the answers are correct. C) Legal abortion. D) Maternity clothing.
C) Legal abortion. The amount paid for a legal abortion is allowed as a deduction for a medical expense.
What is the maximum credit for AOTC, how long can you take the credit, what is the phase out formula, and how much of it is refundable?
The AOTC has a maximum credit of $2,500 per year and is the sum of 100% of the first $2,000 of qualified expenses and 25% of the next $2,000 of qualified expenses. The credit is allowed for the first 4 years of higher education. The credit phases out for AGI between $80,000 to $90,000 for single taxpayers and between $160,000 to $180,000 on a joint return. $2,500 x [$90,000 (if single) or $180,000 (if joint return) - MAGI/ $10,000 (if single) or $20,000 (if joint return) Up to 40% of the credit is refundable.
What is the maximum credit for Lifetime Learning Credit, how long can you take the credit, what is the phase out formula, and how much of it is refundable?
The Lifetime Learning Credit provides a 20% credit of qualified tuition expenses paid by the taxpayer for any year the AOTC is not claimed. The maximum credit allowed per year is $2,000, which is 20% of up to $10,000 of qualified expenses. The credit is available for the lifetime of the taxpayer. The credit phases out between $59,000 to $69,000 for single filers and between $118,000 to $138,000 for those filing joint returns.
The Minimum Tax Credit (MTC) makes use of exclusionary items in its computations. Which of the following is NOT an exclusion item used for this purpose? A) Depreciation B) Tax-exempt interest from bonds. C) Depletion. D) The standard deduction.
A) Depreciation The MTC is allowed for taxpayers who paid AMT for tax years after 1986. The credit is the amount of AMT paid the previous , reduced by the portion generated by exclusion items. Exclusion items include the standard deduction, depletion, tax-exempt interest, and Sec. 1202 exclusions.
A taxpayer paid $7,000 of interest in 2020 on the mortgage given upon acquiring her first home. The taxpayer received a mortgage credit certificate (MCC), which specifies a 30% credit rate. How much of a credit is the taxpayer entitled in 2020? A) $5,000 B) $2,100 C) $2,000 D) $7,000
B) $2,100 Under Sec. 25, MCCs are issued to qualified individuals when privately financing their first purchase of a principal residence. If the specified rate exceeds 20%, the credit is limited to $2,000.
Mr. and Mrs. Ball adopted a child in the current year. During the year, the Ball's qualified adoption expenses were $15,000, and their adjusted gross income was $219,520. What is the amount of the Balls' Adoption Credit for the current year? A) $15,000 B) $14,300 C) $16,087 D) $12,513
D) $12,513 Taxpayers may claim a nonrefundable credit of up to $14,300 for qualified adoption expenses. However, the credit is phased out for taxpayers with income exceeding $214,520. The phaseout is completed when AGI exceeds $254,520. The phaseout for the Balls will be $1,787 [$14,300 x ($219,520 AGI - $214,500 phaseout threshold) / $40,000], resulting in an allowable credit of $12,513 ($14,300 maximum nonrefundable credit - $1,787 phaseout) for the current year.
What is the Foreign Tax Credit (FTC), limit, and formula?
A taxpayer may elect either a credit or a deduction for taxes paid to other countries. This is a nonrefundable credit or deduction, and is applied against all gross tax liability after nonrefundable personal credits. The FTC may offset AMT> FTC = US Income tax before FTC x (Foreign source taxable income/Worldwide taxable income) The limit must be applied separately to nonbusiness interest income and all other income.
Which of the following are expenses that are NOT eligible for the Adoption Credit? A) Attorney fees B) Court costs C) Adoption fees D) Surrogate parenting arrangement costs
D) Surrogate parenting arrangement costs Expenses that are eligible for the Adoption Credit include reasonable and necessary adoption fees, attorney fees, and court costs related to the legal adoption of an eligible child by the taxpayer. However, expenses related to a surrogate parenting arrangement are not eligible for the credit.
The Minimum Tax Credit (MTC) allocable for the current year is limited to A) Current-year gross regular tax (reduced by certain credits) minus previous-year tentative minimum tax. B) Current-year gross regular tax (reduced by certain credits) plus current-year tentative minimum tax. C) Current-year gross regular tax (without regard to any credits) minus current-year tentative minimum tax. D) Current-year gross regular tax (reduced by certain credits) minus current-year tentative minimum tax.
D) Current-year gross regular tax (reduced by certain credits) minus current-year tentative minimum tax. The MTC allowable is limited to current-year gross regular tax (reduced by certain credits) minus current-year tentative minimum tax.
Which statement pertaining to estimated tax payments is NOT correct? A) Estimated tax payments are required when the withholding taxes are greater than the overall tax liability. B) In insufficient tax is paid through withholding, estimated payments may be necessary. C) An individual, whose only income is from self-employment, will have to pay estimated payments. D) Estimated tax is used to pay not only income tax, but self-employment tax and alternative minimum tax as well.
A) Estimated tax payments are required when the withholding taxes are greater than the overall tax liability. The IRC is structured to obtain at least 90% of the final tax through withholding and estimated tax payments. Individuals who earn income not subject to withholding must pay estimated tax on that income in quarterly installments. Each installment must be 25% of the following amounts: 1. 100% of the prior year's tax (if a return was filed) 2. 90% of the current year's tax 3. 90% of the annualized current year's tax (applies when income is uneven) When the withholding taxes exceed the tax liability, there is no need for estimated tax payments.
Ms. B filed her Year 1 Form 1040 on April 15, Year 2, but did not pay her payroll tax liability of $3,000. On June 15, Year 3, she paid the tax in full. In Year 4, Ms. B discovered additional deductions for Year 1 that will result in a refund of $1,000. To receive her refund, Ms. B must file an amended income tax return by (assuming no relevant days are Saturdays, Sundays, or holidays) A) June 15, Year 5. B) April 15, Year 6. C) June 15, Year 6. D) April 15, Year 5.
A) June 15, Year 5 Section 6511(b) states that a claim for a refund must be filed within the time limits established in the statute of limitations on refunds. Section 6511(a) provides that refunds may be made 3 years from the time the return was due or 2 years from the time tax was paid, whichever is later (Publication 17). Here, 2 years from the time the tax was paid is the later date, so Ms. B must file a claim before June 15, Year 5.
All of the following individuals file their income tax returns as single. Which one is required to make estimated tax payments for Year 2? A) Ms. Givonni, who had a $4,000 tax liability for Year 1, expects a tax liability of $4,900 for Year 2 with $3,900 withholding. B) Ms. Streams, who had no tax liability for Year 1, expects to owe $1,200 self-employment tax for Year 2 (she has no withholding tax or credits). C) Mr. Charles, who had a Year 1 tax liability of $10,000, expects a tax liability of $19,500 for Year 2, with $10,500 withholding. D) Mr. Rush, who had a $1,000 tax liability for Year 1, expects a $1,100 tax liability for Year 2 and withholding of $900.
A) Ms. Givonni, who had a $4,000 tax liability for Year 1, expects a tax liability of $4,900 for Year 2 with $3,900 withholding. IN general, individuals must make tax payments or be subject to a penalty. Amounts withheld from wages are treated as estimated tax payments. The annual estimated payment that must be made is equal to the lesser of (1) 90% of the tax for the current year or (2) 100% of the tax for the prior year. Also, no penalty will apply to an individual whose tax for the year, after credit for withheld tax, is less than $1,000. Ms. Givonni does not meet either the 90% or the 100% test, and her tax after credit for withholding is not less than $1,000. Therefore, she will have to make estimated tax payments
Mr. and Mrs. Seifert, both U.S. citizens, are 67 and 64 years old, respectively. Neither is permanently and totally disabled. They filed a joint return for the current year on which they reported adjusted gross income of $15,000. Together they received $1,200 from Social Security, all of which was nontaxable. They received no other nontaxable income. Mr. and Mrs. Seifert's tax before credits is $5. What is the amount of the Credit for the Elderly and the Permanently and Totally Disabled that Mr. and Mrs. Seifert may claim on their current-year Form 1040? A) $375 B) $5 C) $195 D) $0
B) $5 In the case of an individual who has attained age 65 before the close of the taxable year, Sec. 22(a) allows a credit equal to 15% of the individual's Sec. 22 amount. When only one spouse is eligible for the credit, the Sec. 22 amount is equal to an initial amount of $5,000 reduced by any amounts received as Social Security benefits and also reduced by one-half of the excess of adjusted gross income over $10,000 (in the case of a joint return) Initial Sec. 22 amount $5,000 Less: Social Security (1,200) Less: AGI limitation [($15,000 - $10,000) x 50%] (2,500) Section 22 amount $1,300 x .15 Seifert's credit for the elderly $ 195 Since the taxpayers' tax before credits is less than the Credit for the Elderly and the Permanently and Totally Disabled, only $5 of the credit can be claimed.
Trapezoid, Inc., had worldwide taxable income in the current year of $2.5 million. Seventy-five percent of this was earned within the United States, with the remainder being earned in Laos. Trapezoid paid $10,000 in foreign income taxes on $200,000 of nonbusiness-related interest earned in Laos. Trapezoid also paid $150,000 in taxes in Laos on foreign source business income of $425,000. Trapezoid's tentative U.S. income tax was $525,000. What is Trapezoid's FTC in the current year? A) $160,000 B) $99,250 C) $89,250 D) $131,250
B) $99,250 The FTC is allowed under Secs. 27 and 901 and is limited by Sec. 904(a). The limitation is the proportion of the taxpayer's tentative U.S. income tax (before the FTC) that the taxpayer's foreign taxable income bears to his or her worldwide taxable income for the year. Under Sec. 904(d), however, this limitation must be applied separately to nonbusiness-related interest income. For Trapezoid, these limits are Nonbusiness-related interest income: ($200,000/$2,500,000) x $525,000 = $42,000 Foreign business income: ($425,000/$2,500,000) x $525,000 = $89,250 The credit for foreign taxes paid on the interest income is limited to the $10,000 in taxes paid. The credit for foreign income taxes paid on business income is limited to $89,250. Therefore, the total Foreign Tax Credit is $99,250 ($10,000 + $89,250).
How many taxes paid by an individual to a foreign country be treated? A) As an adjustment to gross income B) As a credit against federal income taxes due C) As nondeductible D) As a miscellaneous itemized deduction
B) As a credit against federal income taxes due A taxpayer may elect either a credit or an itemized deduction for taxes paid to other countries or U.S. possessions.
During the current year, Mr. Hughes celebrated his 55th birthday. In order to qualify for the Credit for the Elderly and the Permanently and Totally Disabled, Mr. Hughes must have A) Worked at least part time for the minimum wage in 2 of the preceding 3 years. B) Retired on permanent and total disability. C) Received nontaxable disability benefits. D) Reached mandatory retirement age.
B) Retired on permanent and total disability. Section 22 allows a credit for individuals who are 65 years old or older or have retired on disability and are permanently and totally disabled. Publication 17 and Sec. 22(e)(3) state the definition of permanently and totally disabled as being unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment.
An employee who has had Social Security tax withheld in an amount greater than the maximum for a particular year may claim A) The excess as a credit against income tax, if that excess was withheld by one employer. B) The excess as a credit against income tax, if that excess resulted from correct withholding by two or more employers. C) Reimbursement of such excess from his or her employers if that excess resulted from correct withholding by two or more employers. D) Such excess as either a credit or an itemized deduction, at the election of the employee, if that excess resulted from correct withholding by two or more employers.
B) The excess as a credit against income tax, if that excess resulted from correct withholding by two or more employers. When an employee overpays the Social Security tax, proper adjustments must be made. If the overpayment cannot be adjusted, the amount must be refunded. If the overpayment resulted from correct withholding by two or more employers, the extra Social Security tax may be used to reduce income taxes.
Which of the following statements is NOT a general requirement to qualify for the Child and Dependent Care Credit? A) You must maintain a household that includes a qualifying individual. B) You must be divorced or legally separated when you incur the expense. C) Your expenditures must be necessary to enable you to be gainfully employed. D) Your payments for services must not be to dependent relatives.
B) You must be divorced or legally separated when you incur the expense. Section 21 allows a credit for employment-related expenses for an individual who maintains a household that includes as a member one or more qualifying individuals. A qualifying individual is a dependent of the taxpayer who is physically handicapped, or a spouse of the taxpayer if (s)he is incapable of caring for himself or herself. The taxpayer need not be divorced or separated when the expense is incurred.
Marc and Mandy's dependent children, ages 3 and 4, attend day care where the total expense for 2020 was $5,200, $2,600 per child. Marc earned $20,000 and Mandy earned $15,000, and the two are a married couple. How much Child Care Credit can they claim for 2020? Adjusted Gross Income Percentage for Credit $15,000 35 $20,000 32 $35,000 25 A) $1,820 B) $5,200 C) $1,300 D) $2,100
C) $1,300 The Child Care Credit is computed by multiplying employment-related expenses by a percentage (provided by the IRS) based on AGI. Thus, AGI of $35,000 will be used to calculate the percentage. The maximum amount of the employment-related expenses to which the credit may be applied for one qualifying child or dependent is $3,000, up to $6,000 for households with more than one child. The actual child care expenses paid was $5,200. Marc and Mandy are allowed to claim 25% of the $5,200 ($1,300) because they can use the percentage that is based on AGI of $35,000.
Dan and Marge filed a joint return for 2020. Dan was 67 years old, and Marge's 65th birthday was January 1, 2021; neither of them are disabled. During 2020, they received total nontaxable income of $3,800 from Social Security. Their adjusted gross income was $16,000. How much can they claim as a credit for the elderly before any income tax limitations? A) $375 B) $120 C) $105 D) $0
C) $105 In the case of an individual who has attained age 65 before the close of the taxable year, Sec. 22(a) allows a credit equal to 15% of the individual's Sec. 22 amount. A person is considered to be 65 on the day before his or her 65th birthday. Therefore, both spouses qualify. ON a joint return when both spouses are eligible for the credit, the Sec. 22 amount is equal to an initial amount of $7,500 reduced by any amounts received as Social Security benefits or otherwise excluded from gross income. The Sec. 22 amount is also reduced by one-half of the excess of adjusted gross income over $10,000 (in the case of a joint return), which is $3,000 [($16,000 - $10,000) x 50%] for Dan and Marge. Initial Sec. 22 amount $7,500 Less: Social Security (3,800) Less: AGI limitation [($16,000 - $10,000) x 50%] (3,000) Section 22 amount $ 700 x .15 Dan & Marge's tentative credit for the elderly $ 105 However, the income tax is zero, and the taxpayer would have no credit after the income tax limitation.
Mr. and Mrs. Donegan are filing a joint return for the current year. Mr. Donegan was employed the full year. Mrs. Donegan was a full-time student for 9 months and was not employed at any time during the year. For the 9 months that Mrs. Donegan was a student, she paid $250 per month to a child care center to care for their 4-year-old daughter. For purposes of the Child Care Credit, Mrs. Donegan is considered to have current-year earned income of A) $3,600 B) $6,000 C) $2,250 D) $3,000
C) $2,250 Section 21(d) limits the amount of employment-related expenses to the individual's earned income or the earned income of his or her spouse (whichever is less). A full-time student at an educational institution is deemed to have earned $250 per month while a student with one qualifying individual (Publication 17). Since Mrs. Donegan was a full-time student for 9 months, her earned income is deemed to be $2,250 ($250 x 9 months).
For the current year, Cannon Corporation has U.S. taxable income of $500,000, which includes $100,000 from a foreign division. Cannon paid $45,000 of foreign income taxes on the income of the foreign division. Assuming Cannon's U.S. income tax for the current year before credits is $105,000, its maximum Foreign Tax Credit for the current year is A) $24,000 B) $45,000 C) $21,000 D) $20,000
C) $21,000 The Foreign Tax Credit is allowed under Secs. 27 and 901 for foreign income taxes paid or accrued during the year and is limited be Sec. 904(a). The limitation is the proportion of the taxpayer's tentative U.S. income tax (before the Foreign Tax Credit) that the taxpayer's foreign source taxable income bears to his or her worldwide taxable income for the year. The following should be made: ($100,000/$500,000) x $105,000 = $21,000 The unused credit of $24,000 ($45,000 - $21,000) may be carried back 1 preceding year and then forward to the following 10 taxable years.
Mr. and Mrs. Robinson are both over age 65 and file a joint return. During the current year, they received $4,000 in nontaxable benefits from Social Security. This was their only nontaxable income. Their adjusted gross income was $12,000. How much can they claim as tentative credit for the elderly? A) $525 B) $225 C) $375 D) $0
C) $375 In the case of an individual who has attained age 65 before the close of the taxable year, the credit for the elderly or disabled allows a credit equal to 15% of the individual's applicable base amount. On a joint return when both spouses are eligible for the credit, the applicable base amount is equal to an initial amount of $7,500 reduced by any amounts received as Social Security benefits or otherwise excluded from gross income. The bas amount is also reduced by one-half of the excess of adjusted gross income over $10,000 ( in the case of a joint return), which is $1,000 [($12,000 AGI - $10,000 phaseout threshold) x 50%] for the Robinsons. Initial base amount $7,500 Less: Social Security (4,000) Less: AGI limitation (1,000) Adjusted amount $2,500 x .15 Robinson's tentative credit for the elderly $ 375 Authors' note: The actual credit received would be $0 because there would be no taxable income after subtracting the basic standard deduction, the additional standard deduction.
Liz has adjusted gross income of $65,000, no foreign source income, and a tax before credits of more than $3,000. Her dependents include her son, Ben, who turned 17 in September 2020; her daughter, Sheila, who is 12; and her niece, Abigail, who is 6. All of the children are U.S. citizens and lived with her all year. What is the amount of Child Tax Credit she may claim on her 2020 return filed April 15, 2021? A) $2,000 B) $6,000 C) $4,000 D) $0
C) $4,000 Taxpayers who have qualifying children, i.e., a child , descendant, stepchild, eligible foster child, siblings, or descendent of a sibling who is (1) a U.S. citizen or resident alien for whom the taxpayer may claim a dependency exemption under Code Sec. 151 and (2) less than 17 years old as of the close of the tax year, are entitled to the child credit of $2,000. Liz is entitled to claim two credits: one for her daughter and one for her niece.
Mr. Bagley, a self-employed musician, timely filed his Year 1 income tax return, which showed an AGI of $180,000 and total tax of $45,000. He expects his Year 2 total tax to be $70,000. What is his required payment through withholding and estimated tax for Year 2? A) $0 B) $45,000 C) $49,500 D) $63,000
C) $49,500 The annual estimated payment that must be made is equal to the lesser of (1) 90% of the current year's tax or (2) 100% of the tax for the prior year. In order to avoid penalties for failure to pay estimated taxes, taxpayers with adjusted gross income for the previous tax year in excess of $150,000 must pay 110% of the prior year's tax. Mr. Bagley's adjusted gross income ($180,000) for Year 1 exceeds $150,000, so he must pay 110% of Year 1's tax, or $49,500 ($45,000 x 110%).
Zach and Myra have four children ranging in age from 2 to 10. Zach has wages of $80,000, and Myra has wages of $25,000. Two of the children went to Child Nursery School, Inc., at a total cost of $8,000. The two older children attended a qualified after-school program that costs $2,500. What amount of childcare expenses can be used to determine the credit on their 2020 return? A) $3,000 B) $10,500 C) $6,000 D) $4,800
C) $6,000 The maximum amount of employment-related expenses to which the credit may be applied is $3,000 if one qualifying child or dependent is involved, or $6,000 if two or more are involved. Qualifying expenses include expenses paid for household services and for the care of a qualifying individual. Services outside the home qualify if they involve the care of a qualified child, a disabled spouse, or a dependent who regularly spends at least 8 hours a day in the taxpayer's home.
Smithco, Inc., a domestic corporation, was paid $20,000 of the total of $100,000 in dividends paid by a foreign corporation this year. Smithco owned 20% of the foreign corporation's stock. The foreign corporation paid $35,000 in foreign taxes and had accumulated profits of $120,000 after payment of its foreign taxes for the last 11 years. Smithco also had $1,000 in taxes withheld by the foreign country on the dividend. Smithco has a Foreign Tax Credit before limitation of A) $5,833 B) $1,000 C) $6,833 D) $8,000
C) $6,833 The Foreign Tax Credit is allowed under Secs. 27 and 901(a) for taxes paid by the corporation and those deemed to have been paid under Sec. 902. Section 902(a) provides that a domestic corporation owning at least 10% of the voting stock of foreign corporation and receiving a dividend is deemed to have paid the foreign taxes that the foreign corporation paid on its profits accumulated after 1986. The dividend must be paid out of profits accumulated after 1986, and the amount of foreign taxes deemed paid is in the same proportion as that of the dividend to the profits accumulated after 1986 in excess of the post-1986 foreign taxes. The amount of taxes deemed paid by Smithco is [($20,000 dividend/$120,000 post-1986) x $35,000 post-1986 foreign taxes = $5,833 deemed paid credit Since Smithco also paid $1,000 in foreign taxes through withholding, the total foreign taxes are $6,833, the FTC before limitation. In computing its U.S. tax liability, Smithco must add the deemed taxes paid of $5,833 to its $20,000 of foreign source gross income. The dividend payment reduces the post-1986 undistributed earnings amount. The deemed paid taxes reduce the post-1986 foreign-taxes amount.
Carmella is divorced and has two children, ages 3 and 9. For 2020, her adjusted gross income is $30,000, all of which is earned income. Carmella's younger child stays at her employer's on-site child care center while she works. The benefits from this child care center qualify to be excluded from her income. Carmella's employer reports the value of this service as $3,000 for the year. This amount is shown in box 10 of Carmella's Form W-2, but is not included in taxable wages in box 1. A neighbor cares for Carmella's older child after school, on holidays, and during the summer. Carmela pays her neighbor $3,000 for this care. What is Carmella's Child Care Credit for 2020? A) $600 B) $900 C) $810 D) $480
C) $810 Section 21(a) allows a credit equal to the applicable percentage of employment-related expenses. The applicable percentage is 35%, reduced (but not below 20%) by one percentage point for each $2,000 (or fraction thereof) by which adjusted gross income exceeds $15,000 (Publication 17). Carmella's adjusted gross income exceeded $15,000 by $15,000, so the applicable percentage is 35% - 8% = 27%. Because Carmella has two qualifying children, she may apply the credit up to $6,000 of her child care expenses less the excludable employer dependent-related expenses of $3,000. Therefore, Carmella's maximum credit is $810 [($6,000 - $3,000) x 27%].
Each of the following can be qualifying persons for purposes of claiming the Child and Dependent Care Credit EXCEPT A) A spouse who was physically or mentally unable to care for himself or herself. B) A 10-year old grandson who is your dependent and for whom a dependency exemption is not claimed. C) A dependent, age 5, who is sent to an overnight camp while the parent is out of town on business. D) A dependent who is physically handicapped.
C) A dependent, age 5, who is sent to an overnight camp while the parent is out of town on business. Section 21 allows a credit for employment-related expenses for an individual who maintains a household that includes as a member one or more qualifying individuals. A qualifying individual is a dependent of the taxpayer who is under the age of 13, a dependent of the taxpayer who is physically handicapped, a person eligible to be claimed as a dependent, or a spouse of the taxpayer if (s)he is incapable of caring for himself or herself. No credit is allowed for overnight day care or camps.
Ms. W, who is single, determined that her total tax liability for Year 2 would be $10,000. W is required to make estimated tax payments if A) Her Year 1 tax liability was $5,000 and her Year 2 income tax withholding will be $6,000. B) Her Year 1 tax liability was $12,000 and her Year 2 income tax withholding will be $9,000. C) Her Year 1 tax liability was $9,000 and her Year 2 income tax withholding will be $8,500. D) Her Year 1 tax liability was $12,000 and her her Year 2 income tax withholding will be $9,750.
C) Her Year 1 tax liability was $9,000 and her Year 2 income tax withholding will be $8,500. In general, individuals must make estimated tax payments or be subject to a penalty. Amounts withheld from wages are treated as estimated tax payments. The annual estimated payment that must be made is equal to the lesser of (1) 90% of the tax for the current year of (2) 100% of the tax for the prior year (Publication 17). Assuming Ms. W's tax liability for Year 2 is $10,000 and her Year 1 tax liability was $9,000, the $8,500 withheld from her Year 2 wages does not meet the required annual estimated payment.
All of the following child and dependent care expenses may qualify as work-related for purposes of the Child and Dependent Care Credit EXCEPT A) The cost of household services that are partly for the well-being of a qualifying person. B) The cost of sending a child to school if the child is in a grade below kindergarten and the cost is incident to and cannot be separated from the cost of care. C) The cost of getting a qualifying person from the home to the care location and back. D) The cost of care provided to a qualifying person outside the home.
C) The cost of getting a qualifying person from the home to the care location and back. Employment-related expenses are paid for household services and for the care of a qualifying individual. Expenses are only classified as work-related if they are incurred to enable the taxpayer to be gainfully employed. The cost of transporting a qualifying individual to a place where care is provided is not considered to be incurred for the individual's care.
The following information pertains to Bald Corporation's operations for the current year: Worldwide taxable income $300,000 U.S. source taxable income 180,000 U.S. income tax before FTC 63,000 Foreign nonbusiness-related interest earned 30,000 Foreign income taxes paid on nonbusiness-related interest earned 6,000 Other foreign-source taxable income 90,000 Foreign income taxes paid on other foreign-source taxable income 30,000 What amount of Foreign Tax Credit may Bald claim for the current year? A) $18,900 B) $36,000 C) $25,200 D) $24,900
D) $24,900 The FTC is allowed under Secs. 27 and 901 and is limited by Sec. 904(a). The limitation is the proportion of the taxpayer's tentative U.S. income tax (before the FTC) that the taxpayer's foreign taxable income bears to his or her worldwide taxable income for the year. Under Sec. 904(d), however, this limitation must be applied separately to nonbusiness-related interest income. For Bald, these limits are Nonbusiness-related interest income: Foreign nonbusiness-related interest earned $ 30,000 Worldwide taxable income /300,000 U.S. income tax before FTC x 63,000 $ 6,300 Foreign business income tax: Other foreign-source taxable income $ 90,000 Worldwide taxable income /300,000 U.S. income tax before FTC x 63,000 $ 18,900 The credit for foreign taxes paid on the interest income is limited to the $6,000 in taxes paid. The credit for foreign income taxes paid on business income is limited to $18,900. The $11,100 ($30,000 - $18,900) of excess foreign tax payments can be carried back 1 year and forward 10 years. The total FTC is $24,900 ($6,000 + $18,900).
Bethany is single and has adjusted gross income of $40,000. Bethany works full-time and keeps up a home for herself and her dependent father, who is not able to care for himself. She pays a housekeeper $1,100 per month to care for and provide meals to her father. What is the maximum amount of annual housekeeper expenses that Bethany can use to compute her Dependent Care Credit? A) $6,000 B) $3,600 C) $1,320 D) $3,000
D) $3,000 The amount of employment-related expenses incurred during any taxable year for the care of a qualifying individual may not exceed $3,000 if there is one qualifying individual, or $6,000 if there are two or more qualifying individuals, in computing the Dependent Care Credit. A qualifying individual includes any dependent of the taxpayer who is physically incapable of caring for himself or herself. Some of the expenses for caring for Bethany's father that are not counted for Child Care Credit purposes may be eligible to be deducted as medical expenses.
If an individual paid income taxes in the current year through withholding but did not file a current-year return because his or her income was insufficient to require the filing of a return, the deadline for filing a refund claim is A) 3 years form the date a return would have been due. B) 3 years from the date the tax was paid. C) 2 years from the date a return would have been due. D) 2 years form the date the tax was paid.
D) 2 years form the date the tax was paid. Section 6511(a) and (b) state that a claim of refund must be filed within 3 years form the time the return was filed for 2 years from the time the tax was paid, whichever is later. Section 6511(a) further states that, if no return was filed, the claim for refund is due within 2 years from the time the tax was paid. For tax years ending after August 5, 1997, taxpayers who initially fail to file a return, but who receive a notice of deficiency and file suit to contest in Tax Court during the third year after the return due date, are permitted to obtain a refund of excessive amounts paid within the 3-year period prior to the deficiency notice.
