Deck 9: Tax Credits, Prepayments and Special Methods

Question 1

The general business credit is subject to recapture only if disposition of the property results in an ordinary income.

Answer 1

False
Any disposition before the designated time period triggers the recapture

Question 2

An excess FICA credit may be claimed against the income tax if the taxpayer works for only one employer and more than the maximum social security tax is withheld during the year.

Answer 2

False
Excess taxes paid in to one employer must be recovered from that employer.

Question 3

The earned income credit is refundable.

Answer 3

True

Question 4

Transportation costs for a child between the taxpayer's household and the child care location are allowable child care expenses.

Question 5

A payment to a nursing home for the care of a disabled, dependent parent qualifies as an "employment related" expense for the household and dependent care credit.

Question 6

A single taxpayer is required to provide over half the cost of maintaining a household for himself or herself and a dependent child in order to qualify for the earned income credit.

Question 7

The work opportunity credit is allowed for up to $2,400.

Question 8

Foreign income taxes paid to a foreign country may be claimed as a credit against United States income tax or deducted as an itemized deduction.

Question 9

The credit for outside dependent care applies only to dependents under 13 years of age.

Question 10

Payments made to dependent household members may be included in the computation of dependent care expenses.

Question 11

Taxpayers may elect to carry forward unused general business credit for 10 years rather than back one year and forward 20 years.

Question 12

The employer's wage deduction is reduced by the amount of work opportunity credit claimed.

Question 13

Qualifying property for the general business credit includes buildings and their structural components.

Question 14

The credit for the elderly applies only to individuals age 65 or older.

Question 15

Child care expenses incurred by a taxpayer who is attending a full-time course of studies at an educational institution may be included in the credit computation.

Question 16

If a taxpayer is married on the last day of the tax year, a joint return must be filed in order to claim a dependent care credit.

Question 17

A tax credit produces a tax benefit only to the extent of the effective tax rate in the taxpayer's top bracket multiplied by the amount of the credit.

Question 18

The amount paid to a baby sitter for keeping a six-year-old child on Friday evenings to enable the taxpayer and spouse to attend bridge parties with friends qualifies for the dependent care credit.

Question 19

Tuition paid to a private school for a third-grader qualifies for the dependent care credit.

Question 20

Social security or railroad retirement benefits can reduce or eliminate the amount of allowable credit for the elderly.

Question 21

Certain individuals can get a refundable tax credit of 40 percent of earned income.

Question 22

When utilizing the general business credit from various carryover years, the most recent credits are used first.

Question 23

Minimum tax credits paid in one year may be carried back as an offset against regular tax liability.

Question 24

The excess of percentage depletion over cost depletion is a tax preference item for purposes of computing AMT.

Question 25

A corporation is not subject to AMT in its first year of existence.

Question 26

If the amount of gain included in taxable income is greater than the gain computed under the AMT system, the amount of the gain is a positive adjustment to taxable income when computing AMTI.

Question 27

If an individual qualifies for a special fuels credit, the credit should be included in gross income if a previous deduction of the fuel tax resulted in a reduction of income tax.

Question 28

All taxpayers must compute their income tax liability under both the regular income tax system and the alternative minimum tax system and pay the higher of the two accounts.

Question 29

Business tax credits are limited to tax-paying entities and individuals.

Question 30

Farmers may claim a credit against their income tax for the federal tax on gasoline used on a farm.

Question 31

Most tax credits exist to encourage businesses to make certain types of decisions.

Question 32

The differences between MACRS depreciation and depreciation allowed for computing AMT results in a permanent difference between taxable income and AMTI.

Question 33

In order to qualify for the work opportunity credit, the worker must have performed services for the employer for at least 400 hours during the year.

Question 34

In the AMT system, tax-exempt interest from state and local government (municipal) bonds is not an exclusion.

Question 35

The foreign tax credit is available to both individuals and business entities.

Question 36

For purposes of determining whether a corporation is subject to AMT, once a corporation fails to qualify as a small corporation, it cannot qualify in any subsequent tax year.

Question 37

Unused general business credits can be carried back two years and forward for up to 15 years.

Question 38

Wages paid to workers who either live or work in an empowerment zone or in a renewal community qualify for the empowerment zone and renewal community employment credit.

Question 39

Accelerated depreciation and depletion are examples of tax preference items.

Question 40

Any declaration of estimated income tax required to be filed must include estimated social security tax on self- employment income.

Question 41

An example of a tax preference item that must be added to taxable income when computing AMTI would be:

A) Percentage depletion in excess of the adjusted basis in property
B) Excess intangible drilling costs
C) Tax-exempt interest on certain private activity bonds
D) Only a and b
E) All of the above

Question 42

Taxpayers may take both a credit for some of the qualified foreign taxes they paid or accrued during the year and a deduction for the rest of the qualified foreign taxes they paid or accrued during the tax year.

Question 43

What is the amount of dependent care credit allowed Sally Smith, a divorcee, who pays $3,100 for the year to send her daughter to a babysitter while she works? The daughter is claimed as a dependent by the father. Sally has adjusted gross income of $16,500 for the year.

A) $1,085
B) $1,054
C) $1,020
D) $500
E) None of the above

Question 44

What is the earned income credit allowed Don Andersen assuming he has adjusted gross income of $8,500 and earned income of $5,000? He maintains a household for his daughter.

A) $2,890
B) $3,169
C) $1,700
D) $0

Question 45

On July 10, 2008, Test Corporation purchased energy equipment for $15,000. The equipment has a 5-year cost recovery period. The corporation took the appropriate investment credit for 2008. On August 15, 2012, the corporation sold the asset for $10,000. What is the amount of investment credit recapture that is due to the IRS?

A) $300
B) $900
C) $1,000
D) $1,500
E) None of the above

Question 46

Mr. and Mrs. Gumball are both over age 65. They had income this year consisting of $8,500 earned income and $1,500 in social security benefits. What amount may they claim as a credit for the elderly? They file a joint return.

A) $900
B) $1,165
C) $1,275
D) $0
E) None of the above

Question 47

An alternative minimum tax applies to items that are considered to be of a tax preference nature. Which of the following items is not considered to be a tax preference item?

A) Tax-exempt bond interest issued by a school system
B) Accelerated depreciation on real property acquired before 1987
C) Mining exploration and development costs
D) Gain on the sale of certain small business stock
E) Depletion

Question 48

The minimum tax credit:

A) Provides that the amount of AMT paid by a corporation in one year differences can be used to offset the regular tax liability of a subsequent year
B) May not be used to offset any future AMT tax liability
C) May be carried forward indefinitely as an offset against regular tax liability
D) All of the above

Question 49

What is the "alternative minimum tax" that must be paid by a taxpayer filing a joint return, if the taxpayer has taxable income of $95,450, adjustments to taxable income of $29,000, tax preferences of $50,000, and an income tax before the alternative minimum tax of $6,000?

A) $21,000
B) $15,000
C) $20,000
D) $0
E) None of the above

Question 50

Which of the following is not a tax preference item for purposes of the alternative minimum tax?

A) Percentage depletion in excess of the adjusted basis in property
B) Amortized circulation costs
C) Excess intangible drilling costs
D) Tax-exempt interest on certain private activity bonds
E) All of the above are tax preference items

Question 51

Lorence Lange's tax for the year is $7,000. He has paid in $4,400 in four quarterly payments during the year. Last year, his tax liability was $6,600. Which of the following is correct?

A) Lorence will not have an underpayment penalty.
B) Lorence will have an underpayment penalty on $2,600.
C) Lorence will have an underpayment penalty on $1,900.
D) Lorence will have an underpayment penalty on $2,200.
E) None of the above

Question 52

A qualified child care facility cannot discriminate in favor of the taxpayer's highly compensated employees.

Question 53

What is the amount of dependent care credit for a couple with two children where they spend $5,000 for dependent care and the husband earns $40,000 for the year and the wife earns $4,500?

A) $1,000
B) $990
C) $900
D) $0
E) None of the above

Question 54

The amount of the low-income housing credit may be taken each year for a total of 15 years, beginning with the tax year during which the building is placed in service or, at the building owner's election, the following tax year.

Question 55

What is the maximum amount that Mr. and Mrs. Jones, both over 65, may take as a credit for the elderly before the income tax limitation, assuming that they have gross income of $23,000 and adjusted gross income of $21,500?

A) $1,125
B) $263
C) $20
D) $0
E) None of the above

Question 56

Allied Corporation's tax liability for the year is $49,000 before claiming a general business credit. The corporation earns a general business credit of $60,000. What is the amount of credit allowable for the year?

A) $60,000
B) $43,000
C) $18,000
D) $25,000
E) None of the above

Question 57

Although a work opportunity credit usually is available only for qualified first-year wages, qualified second-year wages paid to a long-term family recipient can qualify for the credit.

Question 58

Sam and Betty Taylor maintain a home and they have two children. Their earned income was $10,000 and adjusted gross income was $11,000. They file a joint return. What is the amount, if any, of their earned income tax credit for the year?

A) $3,400
B) $4,000
C) $4,400
D) $0

Question 59

Carlton Corporation's 2012 general business credit exceeded its 2012 income tax liability. The resultant general business credit:

A) May be placed in a reserve account and, based on the useful lives of the related assets, applied against the income tax liabilities of subsequent year
B) May be returned to the depreciation bases of the related assets and claimed as depreciation over the useful lives of the assets
C) May be carried over for five years except that the carryover is limited to the useful lives of the related assets
D) May be carried back one year and carried forward 20 years
E) None of the above

Question 60

A business qualifies as an "eligible small business" if during the preceding tax year it met either of the following conditions: (1) its gross receipts did not exceed $1 million and (2) it employed no more than 30 full-time employees.

Question 61

Tad Trumbell is married and attending State University. Tad and Mary have one child. Mary worked to help put Tad through school. The child, who is four years old, is kept at a day care school. Tad paid the school $3,500 this year to keep the child. Tad and Mary had income of $14,000 this year, all of which was earned by Mary. Assuming Tad attends school for 12 months, what amount may Tad and Mary claim as a child care credit (Ignore the income tax limitation.)?

Question 62

A work opportunity credit is available for qualified second-year wages paid to which one of the following?

A) Qualified veterans
B) Long-term family assistance recipient
C) Qualified ex-felon
D) High-risk youth

Question 63

What is the general business credit allowed for the year assuming that an individual has earned a general business credit of $40,000 and the tax liability before any general business credit is $37,000? Ignore any alternative tax implications.

Question 64

A married couple has taxable income of $65,000. Their regular income tax is $8,310. If they have tax preferences of $50,000 and adjustments to taxable income of $4,000, what is the total tax due after the alternative minimum tax?

Question 65

Agnes Green, single, had gross income of $138,000, adjusted gross income of $70,000, and taxable income of
$24,500. Her regular income tax liability was $3,250. She had adjustments to taxable income of $10,000 and tax preferences of $80,000. What is Ms. Green's tax liability?

Question 66

All other things being equal, the tax benefits of a tax credit outweigh the tax savings produced by a tax deduction because:

A) It reduces a taxpayer's tax liability
B) It reduces a taxpayer's taxable income
C) It reduces a taxpayer's capital gains
D) None of the above

Question 67

The low-income housing credit can be claimed by owners of qualified low-income building for a period of:

A) 5 years
B) 10 years
C) 15 years
D) 20 years
E) None of the above

Question 68

A corporation paid $50,000 for qualified child care expenses during the year in order to provide child care for its employees. The corporation's child care credit is:

A) $0
B) $5,000
C) $10,000
D) $12,500
E) $25,000

Question 69

The amount of a taxpayer's general business credit for any tax year is limited to the amount by which the taxpayer's net income tax exceeds the greater of:

A) The taxpayer's tentative minimum tax for the tax year or 25 percent of the amount by which the taxpayer's net regular tax liability exceeds $25,000
B) The taxpayer's tentative minimum tax for the tax year or 15 percent of the amount by which the taxpayer's net regular tax liability exceeds $25,000
C) The taxpayer's alternative minimum tax for the tax year or 25 percent of the amount by which the taxpayer's net regular tax liability exceeds $15,000
D) The taxpayer's alternative minimum tax for the tax year or 15 percent of the amount by which the taxpayer's net regular tax liability exceeds $15,000
E) None of the above

Question 70

Which method is used to determine the order in which unused tax credits are carried forward and back?

A) First-in, first-out method
B) Last-in, first-out method
C) First-in, last-out method
D) None of the above

Question 71

The rehabilitation credit can be taken by businesses:

A) For costs associated with business activities that contribute to the revitalization of economically depressed areas
B) For costs associated with the substantial rehabilitation of certified historic structure or other depreciable building that was originally placed in service prior to 1936
C) Who purchase or substantially rehabilitate residential rental property used for low-income housing
D) All of the above

Question 72

The difference between a refundable credit and a nonrefundable credit is:

A) A refundable credit can only reduce a taxpayer's tax liability to zero
B) A nonrefundable credit can only reduce a taxpayer's tax liability to zero
C) Refundable tax credits are only available to individual taxpayers
D) Nonrefundable tax credits are only available to corporations

Question 73

During the current year a corporation pays $8,000 to install ramps to the entrance of the corporation's office building that will allow disabled individuals better access to the building. The corporation's disabled access credit equals:

A) $0
B) $2,000
C) $3,750
D) $3,875
E) $4,000

Question 74

Unused general business credits can be:

A) Carried back one year and carried forward ten years
B) Carried back two years and carried forward ten years
C) Carried back one year and carried forward 20 years
D) Carried back two years and carried forward 20 years
E) Carried back three years and carried forward five years

Question 75

Which of the following is allowed when computing AMTI for individuals?

A) Standard deduction
B) Personal exemptions
C) Charitable contributions
D) Real estate taxes
E) None of the above

Question 76

When tentative minimum tax exceeds the taxpayer's regular tax liability, the excess represents the taxpayer's:

A) Net income tax
B) Alternative minimum tax (AMT)
C) Total income tax liability
D) None of the above

Question 77

Which of the following taxpayers derives the most benefits from a $1 tax credit?

A) Moderate-income taxpayers
B) Higher-income taxpayers
C) Lower-income taxpayers
D) All of the above derive the same benefit for a $1 tax credit

Question 78

Which of the following tax credits is not part of the general business credit?

A) Low-income housing credit
B) Foreign tax credit
C) Employer-provided child care credit
D) Research credit
E) All of the above are part of the general business credit

Question 79

What is the amount of work opportunity credit that an employer may receive for the year assuming the taxpayer hired three qualified individuals and paid them $10,000 each?

Question 80

The tax structure of the individual AMT is a two-tier progressive tax where:

A) The first $175,000 of AMT base is taxed at a 15 percent rate and any excess over that amount is taxed at 25 percent
B) The first $175,000 of AMT base is taxed at a 26 percent rate and any excess over that amount is taxed at 28 percent
C) The first $175,000 of AMT base is taxed at a 25 percent rate and any excess over that amount is taxed at 35 percent
D) None of the above