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Exam 13: Tax Credits and Payment Procedures

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Question 1

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Unused foreign tax credits can be carried back one year and forward fifteen years.

A) True
B) False

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Question 2

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The earned income credit,a form of a negative income tax,is a nonrefundable credit.

A) True
B) False

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Question 3

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Harry and Wilma are married and file a joint income tax return.On their tax return,they report $44,000 of adjusted gross income ($20,000 salary earned by Harry and $24,000 salary earned by Wilma) and claim two exemptions for their dependent children.During the year,they pay the following amounts to care for their 4-year old son and 6-year old daughter while they work. Harry and Wilma may claim a credit for child and dependent care expenses of:

In January 2012,Tammy acquired an office building in downtown Syracuse,New York for $400,000.The building was originally constructed in 1932.Of the $400,000 cost,$40,000 was allocated to the land.Tammy immediately placed the building into service,but quickly realized that substantial renovation would be required to keep and attract new tenants.The renovations,costing $600,000,were of the type that qualifies for the rehabilitation credit.The improvements were completed in October 2012.

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

Explain the purpose of the disabled access credit and describe the general characteristics of its computation.

The calculation of FICA and the self-employment tax both involve two components: the Social Security portion and the Medicare portion,each portion of which is imposed on the same base amounts.

During 2012,Eleanor earns $120,000 in wages as an employee of an accounting firm.She also earns $26,000 in gross income from an outside consulting service she operates.Deductible expenses paid in connection with the consulting service amount to $6,000.Eleanor also has a recognized long-term capital gain of $1,000 from the sale of a stock investment.She must pay a self-employment tax on:

Unless a taxpayer is disabled,the tax credit for the elderly or disabled is available only if the taxpayer is at least 59 1/2 years old.

George and Jill are husband and wife,ages 67 and 65 respectively.During the year,they receive Social Security benefits of $4,000 and have adjusted gross income of $11,000.Assuming they file a joint return,their tax credit for the elderly,before considering any possible limitation due to their tax liability,is:

Golden Corporation is an eligible small business for purposes of the disabled access credit.During the year,Golden makes the following expenditures on a structure originally placed in service in 1988. In addition,$8,000 was expended by Golden on a building originally placed in service in the current year to ensure easy accessibility by disabled individuals.Calculate the amount of the disabled access credit available to Golden Corporation.

Summer Corporation's business is international in scope and is subject to income taxes in several countries.Summer's earnings and income taxes paid in the relevant foreign countries are: If Summer Corporation's worldwide income subject to taxation in the United States is $2,400,000 and the U.S.income tax due prior to the foreign tax credit is $816,000,compute the allowable foreign tax credit.If,instead,the total foreign income taxes paid were $550,000,compute the allowable foreign tax credit.

During the year,Purple Corporation (a U.S.Corporation) has U.S.-source income of $900,000 and foreign income of $300,000.The foreign-source income generates foreign income taxes of $75,000.The U.S.income tax before the foreign tax credit is $408,000.Purple Corporation's foreign tax credit is:

All taxpayers are eligible to take the basic research credit.

Roger is considering making a $3,000 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?

The tax benefit received from a tax credit is affected by the tax rate of the taxpayer.

In computing the foreign tax credit,the greater of the foreign income taxes paid or the overall limitation is allowed.

During the year,Green,Inc.,incurs the following research expenditures: Green's qualifying research expenditures for the year are:

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

BlueCo incurs $700,000 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 $175,000.