Ch.6 Credits and Special Taxes

Clark, a widower, maintains a household for himself and his two dependent preschool children. For the year ended December 31, 2014, Clark earned a salary of $32,000. He paid $3,500 to a housekeeper to care for his children in his home, and also paid $1,500 to a kiddie play camp for child care. He had no other income or expenses during 2014. How much can Clark claim as a child care credit in 2014?

$1,300 Feedback: 26% × ($3,500 + $1,500)

Denice is divorced and files a single tax return claiming her two children, ages 7 and 9, as dependents. Her AGI for 2014 is $81,500. Denice's Child Credit for 2014 is:

$1,650 Feedback: (2 × $1,000) - [($81,500 - $75,000) / $1,000 rounded up to the nearest whole number × $50]

For the 2014 tax year, Sally, who is divorced, reported the following items of income: Interest income $ 600 Wages $4,000 Earnings from self-employment $3,000 She maintains a household for herself and her 1-year-old son who qualifies as her dependent. What is the earned income credit available to her for 2014, using the tables?

$2,389

In 2014, Alex has income from wages of $16,000, adjusted gross income of $18,000, and tax liability of $300 before the earned income credit. What is the amount of Alex's earned income credit for 2014, assuming his 5-year-old dependent son lived with him for the full year?

$3,274

Curly and Rita are married, file a joint return, and have two dependent children, ages 11 and 13. Their AGI is $117,000. By how much is their child credit reduced in 2014?

$350 Feedback: ($117,000 - $110,000) / $1,000 rounded up to the nearest whole number × $50

Robert and Mary file a joint tax return for 2014, with adjusted gross income of $30,000. Robert and Mary earned income of $20,000 and $12,000 respectively, during 2014. In order for Mary to be gainfully employed, they pay the following child care expenses for their 4-year-old son, John: Union Day Care Center $1,700 Wilma, baby sitter (Robert's mother) $1,000 What is the amount of the child and dependent care credit they should report on their tax return for 2014?

$729 Feedback: 27% × ($1,700 + $1,000) = $729

Which one of the following taxpayers qualify for the earned income credit?

A 31-year-old construction worker with $22,000 of AGI and two children.

Taxpayers are required to wait until they file their tax return to receive the premium tax credit. ​

False

To be eligible for the earned income credit for 2014, a taxpayer must have a "qualifying child."

False Feedback: As long as adjusted gross income (AGI) is below a certain level, and the taxpayer is over 25 and under 65 years old and not claimed as a dependent on another return, a taxpayer may be eligible for the earned income credit even if the taxpayer does not have a qualifying child.

All taxpayers are required to have minimum essential health coverage.​

False Feedback: Certain taxpayers can file an exemption.

The total expenses that can be taken as a credit for all tax years for adoption of a child without "special needs" is $6,000.

False Feedback: For 2014, the total expenses that can be taken as a credit for all tax years with respect to an adoption of a child without "special needs" are $13,190.

In determining the amount of the child and dependent care credit, there is a limit of $2,000 on the amount of qualified expenses for one dependent.

False Feedback: In determining the amount of the child and dependent care credit, there is a limit of $3,000 on the amount of qualified expenses for one dependent and $6,000 for two or more dependents.

Salary earned by minors may be taxed at their parents' tax rate.

False Feedback: Only unearned income of minors may be taxed at their parents' tax rate.

Amounts paid to a relative generally do not qualify as child care expenses.

False Feedback: Payments to relatives are eligible for the child and dependent care credit, unless the payments are to a dependent of the taxpayer or to the taxpayer's child who is under the age of 19 at the end of the tax year.

A taxpayer with earned income of $50,000 is not eligible to claim the credit for child and dependent care expenses.

False Feedback: Taxpayers at all levels of income are eligible to claim a credit of at least 20 percent of qualified expenses for child and dependent care expenses.

The foreign tax credit applies only to foreign corporations.

False Feedback: The foreign tax credit applies to U.S. taxpayers who earned income from a foreign country and who were subject to income taxes in that foreign country.

In the case of the adoption of a child who is not a U.S. citizen or resident of the U.S., the credit for qualified adoption expenses is available:

In the year the adoption becomes final.

The American Opportunity credit

Is available for qualifying expenses paid on behalf of the taxpayer and his or her spouse, in addition to those paid for dependents.

The earned income credit:

Must be calculated on earned income as well as adjusted gross income in some cases.

Choose the correct statement:

A taxpayer may receive a 30-percent credit for installing a windmill, which generates electricity, at his vacation home.

Which of the following tax credits is not available for the 2014 tax year?

All of the above are available credits

The child and dependent care provisions:

Are available for spouses incapable of self-care.

Taxpayers are allowed two tax breaks for adoption expenses. They are allowed: Qualified Expenses Paid personally Paid by employer

Credit , Exclusion

Assume Karen is 12 years old and her only income is $2,500 of interest income from a bank account with money her parents have given her to save for college. What are the options Karen has for filing her tax return?

Karen can file a separate tax return or her parents can elect to include her in their tax return, paying tax on $500 of her interest income at their rate of tax.

An individual may claim both a credit and an exclusion from income in connection with the adoption of an eligible child, but may not claim both a credit and an exclusion for the same expense.

True

For 2014, the maximum amount of expenses that qualify for the child and dependent care credit is the same for three dependents as it is for two dependents.

True

For all taxpayers, except those married filing separately, the individual alternative minimum tax rate for 2014 is 26 percent on the first $182,500 of income and 28 percent on income above $182,500.

True

Married taxpayers must file a joint tax return to claim the child and dependent care credit.

True

Net unearned income of certain minor children is taxed at their parents' tax rates.

True

The child credit is $1,000 per qualifying child unless it is phased out due to higher levels of parental income.

True

The child tax credit is not available for children ages 17 and older.

True

The use of the earned income credit could result in a taxpayer receiving a refund even though he or she has not paid any income taxes.

True

Unearned income of a 16-year-old child may be taxed at his or her parents' income tax rate.

True