Ch 13 Accy 405

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

True

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

True

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

True

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

True

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.

True

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.

A

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.

A

. 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.

B

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.

B

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

B -(10,250-250)x50%

. 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.

B -maximum work opportunity tax credit is 40% of the first 6,000 of qualified wages per employee paid in first year of employment -40%x6,000x2 employees

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.

B 180,000-(40,000x40%)

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.

C

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

C

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.

C (9000-250)x50%

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.

C 6,000x40%x2

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.

D

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.

D

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.

D

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

D

Which of the following correctly reflects current rules regarding estimated tax payments for individuals? a. Employees are not subject to the estimated tax payment provisions. b. Any penalty imposed for underpayment is deductible for income tax purposes. c. Married taxpayers may not make joint estimated tax payments unless they file a joint income tax return. d. No quarterly payments are required if the taxpayer's estimated tax is under $1,000.

D

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.

D

. 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.

D -if AGI exceeds 15,000 but is not more than 17,000 the credit is 34%

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.

D -tax credit reduces rogers tax lib by 6,000x40%

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.

E

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.

E

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

False

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

False - not true for tax credits; tax benefit of a tax credit is not affected by the tax bracket

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.

False -taxpayer is not allowed both an income tax exclusion and a credit on the same expenditure

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.

False -900,000x25%=225,000; but limited to 150,000

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

False -FIFO is used

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

False -acquisition costs of a building and of land are not qualified rehabilitation expenditures

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

False -additional medicare taxes are assessed only on wages and unearned income

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

False -an overwithholding will result only if the sum of the employees wages exceeds the base amount of the Social security portion

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.

False -bc the daughter is under age 18, FICA withholding is not required for her

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.

False -both education tax credits are subject to separate income limitations

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

False -both married and unmarried taxpayers are able to receive the earned income credit

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

False -credit for child and dependent care expenses is a nonrefundable credit

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.

False -credit is 31,500x50%- 15,750, but limited to 500

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

False -credit is claimed over a 10 year period

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

False -earned income credit is available to workers without children who are ages 25-64 who cannot be claimed as a dependent on another taxpayers return

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

False -employees also may be subject to the estimated tax payments requirements, particularly if the individual reports investment income

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

False -for costs to qualify for the disabled access credit, building must have been placed into service prior to nov 6,1990

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

False -low income housing credit is available to the owners of qualified low income housing projects

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

False -maximum child tax credit is 2,000 per qualifying child

All taxpayers are eligible to take the basic research credit.

False -only C corporations qualify for the basic research credit

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.

False -purpose is to discourage, not encourage, relocation of businesses

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

False -room and board are ineligible for either of the education tax credits

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

False -taxpayers dependent must be under age of 13

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

False -unused general business credits are carried back one year; any remaining credits are then carried forward for 20 years

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

False -work opportunity tax credit is available only for qualifying first year wages. however it is available for qualifying wages paid during first and second year of employment of qualifying long term family assistance recipients

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

True

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.

True

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

True

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.

True

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

True

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

True

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.

True

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.

True

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.

True

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

True

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

True

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.

True

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

True

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.

True

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

True -tax benefit from a tax credit is not affected by the tax rate of the taxpayer

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

true -eligible expenses include amounts paid for household services and care of qualifying individuals that are incurred to enable the taxpayer to be employed