Ch.14 Questions

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?

30

To claim the Lifetime Learning​ Credit, a student must take at least​ one-half of a​ full-time course load during the year.

False

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

$0

Marvin and Pamela are​ married, file a joint​ return, and have two​ children, ages 9 and 11. Their combined AGI is​ $65,000. Marvin's earned income is​ $40,000; Pamela's is​ $25,000. They incur​ $6,500 of child care expenses to enable them to be employed during the current year. Their child and dependent care credit is

$1,200.

Margo and Jonah have two​ children, ages 13 and 17. Their modified AGI is​ $410,500. What is their child tax​ credit?

$1,450

Carlotta has​ $50,000 foreign-source income and​ $150,000 worldwide income. Her U.S. tax on her worldwide income is​ $30,290, and she paid foreign taxes of​ $16,000. What is the​ Carlotta's foreign tax​ credit?

$10,097

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

An ice cream producer develops a new type of packaging that will keep ice cream frozen while driving home from the grocery store

All​ tax-exempt bond interest income is classified as an AMT preference.

False

An example of an AMT tax preference item is the excess of MACRS depreciation on equipment over depreciation computed by using the​ 150% declining balance method

False

A​ self-employed individual has earnings from his business of​ $300,000 in 2018. For the earnings in excess of​ $128,400, he will only have to pay the​ 2.9% Medicare Tax

False

Nonrefundable personal tax credits can only offset an​ individual's regular​ tax, not AMT

False

​Shafiq, age​ 16, works​ part-time at the local supermarket after school and on vacations. He plans to open a Roth IRA to save for his future. Shafiq makes less than​ $10,000 per year. He can take advantage of the qualified retirement savings contributions credit​ ("saver's credit").

False

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

In order to qualify for the Lifetime Learning​ Credit, a student must be enrolled at least​ 1/2 time

Which of the following statements is incorrect regarding qualifying criteria for the health insurance premium tax​ credit?

The insurance policy must be purchased directly from an insurance company

A taxpayer at risk for AMT should consider which of the following​ decisions?

Timing of state income tax estimated payments

A credit is available to encourage employers to provide child care for employees. The employer can either operate its own child care facility for its employees or pay a separate qualified child care facility under contract.

True

If an individual is an employee and also has​ self-employment income, the maximum tax base for computing​ self-employment tax is reduced by the wages that are subject to the FICA tax

True

If an individual is liable for​ self-employment tax, a portion of the​ self-employment tax is

a for AGI deduction

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

file married filing separately.

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

foreign tax credit

All of the following are allowable deductions under the alternative minimum tax except

state income taxes

In the fall of​ 2018, 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​ $59,000. Her Lifetime Learning Credit is

​$1,120

Reva and Josh Lewis had alternative minimum taxable income of​ $1,050,000 in 2018 and file a joint return. For purposes of computing the alternative minimum​ tax, their exemption is

$96,900

The Lifetime Learning Credit is partially refundable.

False

A wage cap does not exist for which of the following​ self-employment taxes?

Medicare

For purposes of the limitation on qualifying expenses for the child and dependent care​ credit, a spouse who is either a​ full-time student or is incapacitated is deemed to have earned income of​ $250 per​ month, or​ $500 per month if there are two or more qualifying individuals in the household.

True

If an individual is classified as an​ employee, the employer is required to withhold the​ employee's share of the FICA tax and to provide a matching amount.

True

If estimated tax payments equal or exceed​ 100% of the actual tax liability for the prior​ year, there is generally​ (assuming AGI less than or equal to​ $150,000) no penalty for underpayment of estimated taxes.

True

In lieu of a foreign tax​ credit, a taxpayer may elect to take a deduction for foreign taxes paid or accrued.

True

Jay and​ Cara's daughter is starting her freshman year of college. Jay and Cara will be able to claim the American Opportunity Tax Credit for a percentage of the cost of​ tuition, required fees and course​ materials, but the room and board charges will not qualify for the credit.

True

Mortgage interest paid on a mortgage obtained to buy a principal​ residence, deductible for regular income tax​ purposes, is also an allowable deduction for AMT

True

Nonrefundable credits may offset tax liability but may not result in additional payments to the taxpayer.

True

Research expenses eligible for the research credit include costs that are incident to the development or improvement of a product or component.

True

The adoption credit based on qualified adoption expenses is generally allowed in the year the adoption is finalized.

True

The alternative minimum tax applies to individuals only if it exceeds the​ taxpayer's regular income tax liability.

True

The foreign tax credit is equal to the smaller of foreign taxes paid or accrued in the tax year or the portion of the U.S. income tax liability attributable to the income earned in all foreign countries.

True

The nonrefundable disabled access credit is available to eligible small businesses for expenditures incurred to make existing business facilities accessible to disabled individuals.

True

The qualified retirement savings contributions credit is based on a maximum contribution of​ $2,000.

True

When a husband and wife file a joint return and both have​ self-employment income, the​ self-employment tax must be computed separately

True

​One-half of the​ self-employment tax imposed is allowed as a for AGI deduction.

True

To help retain its talented​ workforce, Zapper Corporation opens a child care facility in the building next to its offices. It spends​ $200,000 on​ rent, salaries and supplies. With respect to the​ $200,000 expenditure, Zapper will be entitled to a tax credit and a tax deduction of

Tax Credit $50,000 Tax Deduction $150,000

Nonrefundable tax credits

only offset a​ taxpayer's tax liability in the current year.

Drake and Davina are married and file a joint return for 2018 with taxable income of​ $100,000 and tax preferences and adjustments of​ $65,000 for AMT purposes. Their regular tax liability is​ $13,879. What is the amount of their total tax​ liability?

​$14,456

Timothy and​ Alice, who are married with modified AGI of​ $90,000, are sending their daughter to her first year of college. Their total tuition and related payments during the year amounted to​ $13,000. In​ addition, their daughter received a​ $10,000 scholarship to cover tuition. They have not taken advantage of any other type of tax benefit related to educational expenses. Their American Opportunity Tax Credit is

​$2,250

Which of the following statements is not correct regarding the residential energy efficient property​ (REEP) credit?

All of the above statements regarding the REEP credit are correct

The child and dependent care credit is partially refundable.

False

All of the following are​ self-employment income except

dividends received by a corporate shareholder

Which one of the following is a refundable​ credit?

earned income credit

In computing​ AMTI, adjustments are

either added or subtracted

Tanya has earnings from​ self-employment of​ $240,000, resulting in​ self-employment tax of​ $22,350 and Additional Medicare Tax of​ $360. Due to these​ taxes, Tanya will be allowed a deduction for AGI of

$11,175

Jake and Christina are married and file a joint return for 2018 with taxable income of​ $100,000 and tax preferences and adjustments of​ $20,000 for AMT purposes. Their regular tax liability is​ $13,879. What is the amount of their total tax​ liability?

$13,879

In the fall of​ 2018, 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

$1400

Jorge has​ $150,000 of​ self-employment earnings from a sole proprietorship.​ Jorge's self-employment tax​ (rounded) for 2018 is

$19,939

Kerry is single and has AGI of​ $25,000 in 2018. 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?

$200

Jeffery and​ Cassie, who are married with modified AGI of​ $90,000, are sending their son to his first year of college. Their total tuition and related payments during 2018 amounted to​ $5,500. They have not taken advantage of any other type of tax benefit related to educational expenses. Their American Opportunity Tax Credit for 2018 is

$2500

The maximum amount of the American Opportunity Tax Credit for each qualified student is

$2500

Hong earns​ $128,500 in her job as a​ physician's assistant. She also has her own business selling cosmetics. This business generated​ $10,000 of earnings. What is​ Hong's self-employment tax for​ 2018?

$268

​Lavonne, a single​ taxpayer, has a regular tax liability of​ $11,340 on taxable income of​ $70,000. She also has tax preferences of​ $35,000 and positive adjustments attributable to limitations on itemized deductions of​ $10,000. Lavonne's alternative minimum tax for 2018 is

$282

Doggie Rx Inc. is a new company developing a tasty chewable pill for dogs that will protect them from all types of​ fleas, ticks and intestinal parasites. This is its first year of​ business, and it has spent​ $500,000 on qualifying research expenditures. Doggie Rx will earned a simplified research credit of

$30,000

Indie Corporation purchases a building for use in its business at a cost of​ $100,000. The building was built in 1900 and is a certified historic structure. Indie spends​ $150,000 on qualifying renovations certified as consistent with the buildings character. Indie will earn a total rehabilitation​ (historic) tax credit of

$30,000

​Suzanne, a single​ taxpayer, has the following tax information for the current year. bullet Charitable contribution of real property with a FMV of​ $25,000 (adjusted basis​ $20,000) for which a​ $25,000 deduction was taken for regular tax. bullet Research and experimental expenses of​ $40,000 deducted in full for regular tax. ​Suzanne's total tax preferences and adjustments equals

$36,000

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

$5,000

Max and Alexandra are married and incur​ $5,500 of qualifying expenses to care for their two​ children, ages 2 and 5.​ Max's earned income is​ $35,000 and​ Alexandra's earnings from a​ part-time job are​ $5,000. What is the amount of the qualifying expenses for purposes of computing the child and dependent care​ credit?

$5,000

John has​ $55,000 of​ self-employment earnings from a sole proprietorship. John is also employed​ part-time by a major corporation and is paid​ $25,000. John's​ self-employment tax for 2018 is

$7,771

Bud and Stella are​ married, file a joint​ return, and have one​ child, age 3. Their combined AGI is​ $35,000. Bud and Stella incur​ $3,500 of child care expenses during the current year. The child and dependent care credit is

$750

Ava has net earnings from​ self-employment of​ $125,000. She also earned salary of​ $170,000 from a job held earlier in the year. How much Additional Medicare Tax will be owed on the​ self-employment income?

$769

​Patty, a single​ taxpayer, 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​ $89,000 in foreign taxes upon the foreign source taxable income. U.S. taxes before credits are​ $115,690. The foreign tax credit limitation is

$86,768

Carlotta has​ $50,000 foreign-source income and​ $150,000 worldwide income. Her U.S. tax on her worldwide income is​ $30,290, and she paid foreign taxes of​ $9,000. What is the​ Carlotta's foreign tax​ credit?

$9000

If a​ taxpayer's AGI is greater than​ $150,000, no penalty will be imposed if the taxpayer pays estimated tax payments in 2018 equal to what percentage of​ 2017's income tax​ liability?

110%

The earned income credit is refundable only if a tax has been withheld.

False

Mingming and​ Xavier, unrelated single​ taxpayers, have each incurred a​ $1,000 expenditure. Before considering this​ expenditure, Mingming has taxable income of​ $500,000 and Xavier has taxable income of​ $32,000. Assume the expenditure qualifies as either a tax deduction or a​ 25% credit. Which of the following statements is​ correct?

Mingming will prefer the​ deduction, but Xavier will prefer the credit.

​Self-employment taxes include components for

Social Security and Medicare hospital insurance.

Amelida expects to earn​ $145,000 of AGI and​ $125,000 of taxable income this year. She is concerned about underpayment penalties. Because of a substantial​ bonus, her prior year AGI was​ $155,000 and her taxable income was​ $135,000. Based on her fact​ pattern, which of the following scenarios will not allow her to avoid underpayment​ penalties?

The estimated payments total at least​ 100% of the tax due for the prior year.

Refundable tax credits

allow the excess over the​ taxpayer's tax liability to be paid to the taxpayer.

A taxpayer supports an elderly relative who satisfies the Sec. 152 criteria for​ "qualifying relative." The taxpayer may claim a​ $500 tax credit.

True

In computing​ AMTI, tax preference items are

added only

Harley's tentative minimum tax is computed by multiplying the AMT tax rates by her

alternative minimum tax base

In calculating a​ taxpayer's AMT, adjustments for timing differences will be made for all of the following assets except for

an office building placed in service in 2015

Which statement is​ correct?

ax credits reduce tax liability on a​ dollar-for-dollar basis

All of the following statements regarding​ self-employment income/tax are true except

employees who have a business in addition to their regular employment are not subject to the​ self-employment tax since FICA is withheld on their wages.

An individual with AGI equal to or less than​ $150,000 in the prior year may generally avoid penalties for underpayment of estimated tax in each of the following cases with the exception of

estimated tax is less than​ $1,500.

In computing​ AMTI, all of the following must be added back except

home mortgage interest​ (on mortgage in effect since home was​ purchased)

With respect to estimated tax payments for a taxpayer with AGI of​ $150,000 or lower in the prior​ year, all of the following are generally true with the exception of

no underpayment penalty is imposed if the estimated payments total at least​ 90% of the actual tax liability for the prior year.

A taxpayer will be ineligible for the earned income credit if he or she has disqualified investment income of more than​ $3,500 in 2018. Disqualified income includes all the following except

self-employment income.

Form​ 6251, Alternative Minimum​ Tax, must be filed in any of the following situations except

the earned income tax credit exceeds the tentative minimum tax

Joan earns​ $119,900 in her job as a​ physician's assistant. She also has her own business selling cosmetics. This business generated​ $10,000 of earnings. What is​ Joan's self-employment tax for​ 2018?

​$1,322

A larger work opportunity credit is available for employers who hire any veteran of the U.S. military.

False

Mark and Stacy are​ married, file a joint​ return, and have one​ child, age 3. Their combined AGI is​ $55,000. Mark and Stacy incur​ $3,500 of child care expenses during the current year.​ Mark's employer reimburses him​ $1,500 under a qualified dependent care assistance plan. The child and dependent care credit is

$300

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

25% of the net regular tax liability above​ $25,000

A couple has filed a joint tax return since they were first married. Because of​ self-employment income and significant investment​ income, they have made joint quarterly estimated tax payments. Before​ year-end the couple has​ divorced, and they will each file their own individual returns. The estimated payments made jointly while still married earlier in the year will be divided evenly between the two individual returns.

False

A credit for rehabilitation expenditures is available to a business for the purchase price of a building which has received the certified historic structure designation.

False

A taxpayer acquired an office building to be used in her business this year. For AMT​ purposes, depreciation must be recalculated using the​ straight-line method over 40 years.

False

A taxpayer is calculating this​ year's depreciation deduction on equipment placed in service in 2015. For AMT​ purposes, depreciation must be recalculated using the​ straight-line method over the same recovery period used for regular tax purposes.

False

Assume a taxpayer projects that his total income tax for the year will​ $25,000. A taxpayer with savings should prefer to structure his tax prepayments so that he will receive a tax refund of​ $2,500 rather than a tax due of​ $2,500.

False

A​ taxpayer's tentative minimum tax exceeds his net income tax so he will be paying the alternative minimum tax this year. The taxpayer has a sole proprietorship through which he has earned general business credits. The taxpayer can reduce his AMT to the extent of his general business credits.

False

Claire accepts a new job. She will have access to health insurance coverage through her employer. The​ employer's policy meets the criteria for affordable minimum essential coverage. Claire prefers to purchase her own insurance policy through the state or federal exchange so she can retain access to her doctor. Assuming​ Claire's income is within the parameters​ specified, she will be eligible for the health insurance premium assistance credit.

False

For purposes of the child and dependent care​ credit, qualifying​ employment-related expenses cannot include payments to a relative.

False

For purposes of the​ AMT, certain itemized deductions are​ disallowed, but the standard deduction is allowed.

False

For purposes of the​ AMT, only the foreign tax credit and refundable personal credits are allowed to reduce the tentative minimum tax.

False

If an employee has more than one employer during the​ year, all employers must withhold federal income taxes but only one employer must withhold FICA tax.

False

Qualified tuition and related expenses eligible for the American Opportunity Tax Credit are limited to those incurred the first two years of postsecondary education.

False

Taxpayers with income below​ phase-out amounts are allowed a child credit of​ $2,000 for each qualifying child under age 19 or under age 24 if a​ full-time student.

False

The child and dependent care credit is available to any parent who pays for child care for a child under age 13.

False

The earned income credit is available only to taxpayers with qualifying children.

False

The general business credits are refundable credits.

False

The health insurance premium assistance credit is designed to help lower and middle income taxpayers who purchase their own health insurance directly from an insurance company or through a state or federal exchange.

False

Yulia has some funds that she wishes to​ invest, but is concerned that she is at risk for AMT. Yulia should avoid investing in all municipal bonds.

False

​Bob's income can vary widely from​ year-to-year because much of his compensation comes from sales commissions and bonuses. It generally is in the​ $200,000 to​ $300,000 range. To minimize the risk of underpayment penalties for estimated​ tax, he should pay​ in, through payroll withholding and estimated tax​ payments, 100% of the prior year tax liability.

False

​Self-employed individuals are subject to the​ self-employment tax if their net earnings are more than​ $600

False

A taxpayer who paid AMT in prior​ years, but is not subject to the AMT in the current​ year, may be entitled to an AMT credit against his regular tax liability in the current year.

True

Business energy tax credits are available to businesses that invest in​ energy-conserving solar energy properties.

True

A taxpayer is paying alternative minimum tax this year. The AMT is primarily due to timing​ differences, resulting in the creation of a minimum tax credit. The taxpayer will apply the minimum tax credit

against a future​ year's regular tax liability when regular tax exceeds the tentative minimum tax

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

can be carried back one year and then carried forward ten years

​Joe, who is single with modified AGI of​ $84,000, is sending his son to his first year of college. The total tuition and related payments during the year amounted to​ $18,000. Joe has not taken advantage of any other type of tax benefit related to educational expenses. His American Opportunity Tax Credit is

​$1,500

In​ 2018, Charlton and Cindy have alternative minimum taxable income of​ $230,000 and file a joint return. For purposes of computing the alternative minimum​ tax, their exemption is

​$109,400.

Evan and Barbara incurred qualified adoption expenses in 2017 of​ $6,000, and then incurred​ $9,000 more in 2018 when the adoption of their child became final. Their 2017 AGI was​ $110,000 and their 2018 AGI was​ $100,000. The allowable adoption credit is

​$13,810 in 2018

Marguerite and Josephus have two​ children, ages 13 and 10. Their modified AGI is​ $410,500. What is their child tax​ credit?

​$2,900

In​ 2018, Rita is divorced with one child. She has AGI of​ $20,000 resulting in a federal income tax liability of​ $200 and an earned income credit of​ $3,247. She has had​ $550 of federal income taxes withheld from her pay. Rita will receive a federal income refund of

​$3,597

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?

​$4,000

Rex has the following AMT adjustment​ factors: bullet Depreciation of real property acquired in 1996 using MACRS is​ $22,000 while depreciation for AMT purposes is​ $15,000. bullet ​R&E expenditures amounting to​ $60,000 are expensed. The net adjustment is

​$61,000

Mr. and Mrs. Lewis have an alternative minimum tax base of​ $312,000 in 2018. Their tentative minimum tax will be

​$83,530

Lee and Whitney incurred qualified adoption expenses in 2017 of​ $2,000, and then incurred​ $7,000 more in 2018 when the adoption of their child became final. Their 2017 AGI was​ $120,000 and their 2018 AGI was​ $140,000. The allowable adoption credit is

​$9,000 in 2018

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. This year 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

​$91,000

An individual taxpayer who is​ self-employed and an active investor has qualified for foreign tax​ credits, nonrefundable personal tax credits and general business credits. Because he knows there are differing limitations on the application of these​ credits, with resulting interrelated​ aspects, he wants to know the appropriate order for their application. The appropriate order of the application of these three classes of tax credits is as​ follow:

​(1) nonrefundable personal tax​ credits; (2) foreign tax​ credits; (3) general business credits