Ch 9: Tax Credit

Sara, who is single, contributed $6,000 to her Roth IRA for 2020. She had MAGI of $17,000 for 2020 and used the single filing status. She has never taken a distribution from a retirement plan. What is her maximum retirement savings credit for 2020?

$1,000 Her maximum credit for 2020 is $1,000 ($2,000 x 50%).

Kathryn earns a salary of $150,000 from Hospitals, Inc. as a hospital administrator during 2020. Hospitals, Inc. withholds OASDI taxes in the amount of $8,537. She also earns $20,000 of wages from CPR Experts where she teaches CPR. CPR Experts withholds OASDI taxes in the amount of $1,240. What is Kathryn's available credit for excess Social Security taxes withheld, assuming Kathryn's tax due before application of the credit is $800?

$1,240 Kathryn will be allowed to take a $1,240 refundable credit against income taxes for the excess Social Security taxes withheld from her compensation during the year. She is only required to pay Social Security tax on the first $137,700 (2020) which was withheld from Hospitals, Inc. The amount withheld from CPR Experts is the excess amount.

Jim, a married filing jointly taxpayer, paid $5,000 of qualified tuition and related expenses for each of his twin daughters, Stephanie and Amanda, during 2020. They started their freshman year of college during 2020. Jim was very excited that both daughters excelled in the college environment; especially since Stephanie had a drug addiction during her senior year of high school (Jim had a friend on the college admissions board that thankfully overlooked Stephanie's felony drug conviction). Jim also paid $2,000 of qualified tuition and related expenses for his daughter Linda's sophomore year of college and $3,000 for his own master's program. Jim claims all three of his daughters as dependents. His modified gross income for the year is $50,000. What is the available Lifetime Learning Credit assuming he elects to use the Lifetime Learning Credit for those expenses that do not qualify for the American Opportunity Tax Credit?

$1,600 ($5,000 + $3,000) x 20%

Steve and Kendra have been unable to have a baby. They decided last year that adoption would the best choice for them. They believe that they can support a child that has special needs both financially and emotionally. Therefore, they adopted, Janice, a four year old child with special needs this year. They paid $8,000 in qualifying adoption expense for the current year. Their MAGI for the year is $160,000 and their tax due before the application of the qualified adoption credit is $10,000. What amount can Steve and Kendra's claim as an adoption credit for 2020?

$14,300.

In 2020, Ginger paid $5,000 for qualified solar electric property and $4,000 for qualified fuel cell property with one kilowatt of capacity for her vacation home. She also paid $10,000 for qualified solar water heating property for her personal residence. What is her maximum residential energy efficient property credit for 2020?

$3,900 ($5,000 x 26%) + ($10,000 x 0.26%)

Jim, a married filing jointly taxpayer, paid $10,000 of qualified tuition and related expenses for each of his twin daughters, Stephanie and Amanda, during 2020. They started their freshman year of college during 2020. Jim was very excited that both daughters excelled in the college environment; especially since Stephanie had a drug addiction during her senior year of high school (Jim had a friend on the college admissions board that thankfully overlooked Stephanie's felony drug conviction). Jim also paid $2,000 of qualified tuition and related expenses for his daughter Linda's sophomore year of college, and $3,000 for his own master's degree program. Jim claims all three of his daughters as dependents. His modified gross income for the year is $50,000. What is the available American Opportunity Tax Credit for 2020?

$4,500 The credit available for Linda is $2,000 ($2,000 x 100%). Linda would have needed $4,000 of expenses to get the maximum credit. The total of credits for Amanda and Linda is $4,500 for 2020.

Brandy is a single mom with 2 children, Zach and Wendy. Zach is 14 years old and Wendy is 3 years old. Brandy has AGI of $50,000. She paid the following expenses for child care this year: • $300 to Zach to care for Wendy so Brandy could go out to dinner with friends. • $1,000 for an after-school program for Zach. • $3,500 to Brandy's mother for the care of Wendy during the day. What is Brandy's available child and dependent care credit?

$600 Since Brandy has AGI over $43,000 she is able to take a credit of 20% x $3,000 = $600.

Andy's second wife, Gina, died several years ago. Andy and Gina had two children together, Sara and Ben (twins, age 6) and they had adopted a child Andrew (age 10). Andy also had a child, Angela, age 18, with his first wife. Andy's fiancé (who also lives with Andy) gave birth to Andy's biological child, Sue Ellen, in November of the current year. All five children live with Andy and he claims all of them as dependents. Andy's AGI for the current year is $60,000 and he files head of household. What is Andy's available child tax credit?

$8,000 He is entitled to $2,000 credit for four of the five children.

Which of the following is a refundable credit?

Earned Income Credit

Which of the following statements concerning the earned income credit is correct?

If the taxpayer has a qualifying child, the child must meet a relationship, age, and residency test.

Which of the following statements concerning refundable tax credits is correct?

Refundable tax credits can generate a tax refund.

Amber pays foreign income taxes of $1,200 (at the same rate as U.S. income taxes) on foreign earned income for the current year. Her U.S. income tax for the year is $22,000. Her total itemized deductions other than the allowable deduction for foreign income taxes are $500 less than her standard deduction. If she is in the 24% marginal tax bracket, which of the following should she do?

She should take a credit for the foreign tax paid.

Which of the following statements concerning business credits is correct?

The amount of the rehabilitation credit is 20 percent of the qualified rehabilitation expenditures for certified historic structures.

Which of the following statements concerning the Credit for the Elderly or Disabled is correct?

The credit is available to U.S. citizens and residents who qualify.

Which of the following statements concerning the general business credit is correct?

The general business credit is a combination of more than 30 different nonrefundable tax credits.