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Exam 12: Tax Credits and Payments

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Question 51

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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.

A) True
B) False

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Question 52

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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 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:

A) $0.
B) $10,000.
C) $13,000.
D) $14,000.
E) None of the above.

F) A) and B)
G) C) and D)

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Question 53

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An employer's tax deduction for wages is affected by the work opportunity tax credit.

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: Country Income Taxes A $1,000,000 $500,000 B 300,000 30,000 C 400,000 120,000 Total $1,700,000 $650,000 ​ 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.

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

The tax credit for rehabilitation expenditures for certified historic structures differs from that for qualifying structures that are not certified historic structures.

Several years ago,Tom purchased a structure for $300,000 that was originally placed in service in 1929.Three and one-half years ago he incurred qualifying rehabilitation expenditures of $600,000.In the current year,Tom sold the property in a taxable transaction.Calculate the amount of the recapture of the tax credit for rehabilitation expenditures.

In 2014,Juan and Juanita incur $9,800 in legal and adoption fees directly related to the adoption of an infant son born in a nearby state.Over the next year,they incur another $4,500 of adoption expenses.The adoption becomes final in 2015.Which of the following choices properly reflects the amounts and years in which the adoption expenses credit is available. 2014 2015

A taxpayer who qualifies for the low-income housing credit claims the credit over a 20-year period.

Some (or all) of the tax credit for rehabilitation expenditures will have to be recaptured if the rehabilitated property is disposed of prematurely or if it ceases to be qualifying property.

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.

The purpose of the tax credit for rehabilitation expenditures is to encourage the relocation of businesses from older,economically distressed areas (i.e. ,inner city) to newer locations.

A taxpayer's earned income credit is dependent on the number of his or her qualifying children.

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

If a taxpayer is required to recapture any tax credit for rehabilitation expenditures,the recapture amount need not be added to the adjusted basis of the rehabilitation expenditures.

The maximum child tax credit under current law is $1,500 per qualifying child.

The components of the general business credit include all of the following except:

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.

Henry,age 68,and Wilma,age 69,are married retirees who received the following income and retirement benefits during the year. Fully taxable pension from Henry's former employer $8,800 Taxable interest 4,500 Social Security benefits 2,400 ​ Assume Henry and Wilma file a joint return,have no deductions for AGI,and do not itemize their deductions.Are they eligible for the tax credit for the elderly? If so,calculate the amount of the credit,assuming the credit is not limited by their income tax liability.

Roger is considering making a $6,000 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?