Chapter 9 Questions Flashcards
A $1,000 credit is more valuable than a $1,000 deductible.
True. The credit will directly reduce one’s tax liability while the deductible will only reduce it at one’s marginal tax rate.
Phaseouts reduce or eliminate certain credits for higher income earners.
True. Phaseouts mean low income earners are more likely to receive credits.
The Child Tax Credit can reduce a taxpayer’s tax liability below $0, triggering a negative tax rate.
True. The Child Tax Credit is an example of a refundable tax credit.
An eligible child for the Adoption Expenses Tax Credit must be younger than 8 years old or have special needs.
False. Eligible children must be younger than 18.
Qualifying dependents for the Dependent Care Credit must be younger than 19 years old.
False. Qualifying dependents must be younger than 13.
Unlike the American Opportunity Tax Credit, the Lifetime Learning credit can be used for graduate school expenses.
True. The American Opportunity Tax Credit is limited to the first four years of post-secondary education expenses.
Ignoring any phaseouts, a student with $3,000 in qualified education expenses generates $2,500 in American Opportunity Tax Credits.
False. The credit is calculated by taking 100% of the first $2,000 expenses and 25% of the next $2,000. In this case, $3,000 in expenses would generate $2,250 in AOT Credits.
All of the following statements regarding the tax credit for children are incorrect EXCEPT:
A. The tax credit is phased out for only the highest income taxpayers.
B. None of the credit is refundable for lower income taxpayers.
C. The tax credit is equally valuable to all taxpayers regardless of marginal tax bracket.
D. The qualifying child must be under the age of 17.
All of the following statements regarding the tax credit for children are incorrect EXCEPT:
B. None of the credit is refundable for lower income taxpayers.
A portion of the Child Tax Credit is refundable to low-income taxpayers. The credit is subject to phaseouts, limiting its use for taxpayers in higher marginal tax brackets. Moreover, the credit is available only for children younger than 17.
Which of the following statements about the tax credit for adoption expenses is correct?
A. An eligible child includes only a child under the age of 18.
B. The credit is never completely phased out.
C. Qualified expenses include legal, court and attorney fees.
D. The credit is always claimed in the year of expenditure of qualifying expenses.
Which of the following statements about the tax credit for adoption expenses is correct?
C. Qualified expenses include legal, court and attorney fees.
The credit may be taken over multiple years, but is subject to a total phaseout for high income earners. A qualifying child may be under age 18 or have certain disabilities.
