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Exam 12: Tax Credits and Payments

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Question 51

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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.

A) True
B) False

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Question 52

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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.

A) True
B) False

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Question 53

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

Several years ago, Sarah purchased a certified historic structure for $150,000 that was placed in service in 1929. In the current year, she incurred qualifying rehabilitation expenditures of $200,000. The amount of the tax credit for rehabilitation expenditures and the amount by which the building's basis for cost recovery would increase as a result of the rehabilitation expenditures are the following amounts.

Jack and Jill are married, have three children, and they report earnings during 2019 of $28,500. Do they qualify for the earned income credit? If so, calculate the amount of credit that is available to them.

Susan generated $55,000 of net earnings from the conduct of a tax preparation business that she operated during the tax-filing season. She also received wages of $82,700 from her full-time job. Compute the self-employment taxes due for 2019.

Discuss the treatment of unused general business credits.

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.

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.

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.

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

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.

Rick spends $750,000 to build a qualified low-income housing project, which is placed in service on January 1, 2019. He financed the project using his personal funds. What is the amount of the low-income housing credit that Rick may claim in 2019 (assuming a rate of 7.40%)? What is the total amount of the credit that Rick may claim as a result of the $750,000 expenditure?

During the current year, Eleanor earns $120,000 in wages as an employee of an accounting firm. She also earns $13,000 in gross income from an outside consulting service she operates. Deductible expenses paid in connection with the consulting service amount to $3,000. Eleanor also incurs a recognized long-term capital gain of $1,000 from the sale of a stock investment. She must pay a self-employment tax on:

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

Which of the following statements is true regarding the education tax credits?

Bob and Sally are married, file a joint tax return, report AGI of $120,000, and have two children. Del is beginning her freshman year at State College during fall 2019, and Owen is beginning his senior year at Southwest University during fall 2019. Owen completed his junior year during the spring semester of 2018 (i.e., he took a "leave of absence" during the 2018-2019 school year) . Both Del and Owen are claimed as dependents on their parents' tax return. Del's qualifying tuition expenses and fees total $5,000 for the fall semester and Owen's qualifying tuition expenses were $6,100 for the fall 2019 semester. Del's room and board costs were $3,200 for the fall semester. Owen did not incur room and board costs because he lived with his aunt and uncle during the year. Full payment is made for the tuition and related expenses for both children at the beginning of each semester. In addition to the children's college expenses, Bob also spent $3,000 on professional education seminars during the year in order to maintain his license as a practicing dentist. Bob attended the seminars during July and August 2019. Compute the available education tax credits for Bob and Sally for 2019.

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

Describe the withholding requirements to be followed by employers.

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.