Tax Credits Flashcards
Which of the following disqualifies an individual from the earned income credit?
A. The taxpayer’s qualifying child is a 17-year-old grandchild.
B. The taxpayer has earned income of $5,000.
C. The taxpayer’s five-year-old child lived in the taxpayer’s home for only eight months.
D. The taxpayer has a filing status of married filing separately.
D
Mr. and Mrs. Alexander have two dependent children, one of whom (Cal) is a freshman in college during 2015. Tuition and fees paid for Cal during 2015 total $15,000. The Alexanders also paid $10,000 in 2015 for their 14 year old daughter, Kaitlin, to attend a private high school. The Alexanders file a joint tax return for 2015 and report adjusted gross income of $150,000. Cal is a full-time student and enrolled in a degree program. What is the Alexander's Hope/American Opportunity Tax Credit for 2015? A. $ 0 B. $2,500 C. $5,000 D. $15,000
B - The credit is computed as 100% of the first $2,000 and 25% of the next $2,000 of qualified educational expenses, for a total of $2,500. This credit does not begin phasing out in 2015 for married filing joint returns until AGI reaches $160,000. The credit applies only to post-secondary expenses so the tuition for Kaitlin does not qualify
In 2015, to qualify for the child care credit on a joint return, at least one spouse must
- Have an adjusted gross income of $15,000 or less
- Be gainfully employed/looking for work or a student when related expenses are incurred
2 only - Individual taxpayers with adjusted gross income of $15,000 or less may claim a child care credit for 35 percent of employment related expenses. The credit is reduced by one percent of the expenses for each $2,000 of adjusted gross income over $15,000, but is not reduced to less than 20 percent of the expenses.
This response correctly indicates at least one spouse does not need to earn $15,000 or less to claim the credit. Earning more than $15,000 does not make a taxpayer ineligible for the credit, it reduces the amount of the credit by decreasing the percentage of the expenses that may be claimed.
This response also correctly indicates that at least one spouse must be gainfully employed or looking for work to claim the credit.
Child tax credit requirements/computation
Qualifying children must be 17 and under
$1,000 per child
AGI phase out: $110,000married/$75,000 single
Credit reduced by $50 for every $1,000 over threshold
American opportunity credit/lifetime learning credit
AOC - first 4 years college. Tuition/fees. 100% first $2,000 and 25% next $2,000
LLC - after first 4 years college. Tuition/fees. $10,00 limit. Credit = 20% qualifying expenses. 108,000-128,000 AGI phase out. Phase out percentage = $over limit/20,000
Which of the following statements concerning tax credits is true?
A. The foreign tax credit is available for business entities, such as corporations, but not for individuals.
B. Unused general business credits are carried back two years and forward 20 years.
C. For the rehabilitation credit, expenditures to rehabilitate property placed in service before 1936 are eligible for a 20% credit.
D. The work opportunity tax credit is calculated on the amount of wages paid per eligible employee during the first year of employment. The maximum credit is $2,400 per eligible employee.
D
The following information pertains to Wald Corp.’s operations:
Worldwide taxable income $300,000
U.S. source taxable income 180,000
U.S. income tax before foreign tax credit 96,000
Foreign source taxable income 120,000
Foreign income taxes paid on foreign source taxable income 39,000
What amount of foreign tax credit may Wald claim?
$38,400
The foreign tax credit is the lower of:
1) foreign tax paid ($39,000), or
2) U.S. tax x foreign taxable income / worldwide taxable income
$96,000 x $120,000 / $300,000 = $38,400
