Question

8 Credits

[1] If a taxpayer qualifies for the Earned Income Credit, such credit can be subtracted from

A. Gross income to arrive at adjusted gross income.

B. Adjusted gross income to arrive at taxable income.

C. The tax owed, or can result in a refund, but only if the taxpayer had tax withheld from wages. D. The tax owed, or can result in a refund, even if the taxpayer had no tax withheld from wages.

[2] Which of the following items is considered earned income for the Earned Income Credit?

A. Self-employment income earned from a sole proprietorship. B. Interest on savings accounts.

C. Capital gains on stock sales.

D. Rental income for which no services are performed.

[3] In the current year, Alex Burgos, who is 24 years old, paid $600 to Rita, his ex-wife, for child support. Under the terms of his divorce decree, Alex claims for any dependency purposes his 3- year-old son, William, who lived with Rita for the entire year. Alex’s only income in the current year was from wages of $16,000, resulting in an income tax of $400. How much is Alex’s Earned Income Credit for the current year?

A. $0

B. $519 C. $3,461 D. $5,716

[4] For purposes of claiming the Earned Income Credit, a qualifying child could be any of the following except

A. Your 20-year-old unemployed child.

B. Your child who is less than 19 years old.

C. Your 22-year-old grandson who is a full-time student. D. Your 40-year-old permanently disabled stepson.

[5] Which of the following statements is not a general requirement to qualify for the child and dependent care credit?

A. The qualifying individual must not provide more than 50% of his or her own support. B. Your expenditures must be necessary to enable you to be gainfully employed.

C. Your payments for services must not be to dependent relatives.

D. You must be divorced or legally separated when you incur the expense.

[6] All of the following qualify as work-related expenses for computing the child and dependent care credit except

A. The parent-employer’s portion of Social Security tax paid on wages for a person to take care of dependent children while the parents work.

B. Payments to a nursery school for the care of dependent children while the parents work.

C. The cost of meals for a housekeeper who provides necessary care for a dependent child while the parents work.

D. Payments to a housekeeper who provides dependent care while the parent is off from work because of illness.

[7] Miss Dunn, a single parent who keeps up a home for herself and her two preschool children, paid work-related expenses of $6,200 for child care at a nursery school. Her adjusted gross income is $25,000, the sole source of which is wages. What amount can she claim as a Child Care Credit?

A. $1,740 B. $1,800 C. $1,860 D. $6,200

[8] Bethany is single and has adjusted gross income of $40,000. Bethany works full-time and keeps up a home for herself and her dependent father, who is not able to care for himself. She pays a housekeeper $1,100 per month to care for and provide meals to her father. What is the maximum amount of annual housekeeper expenses that Bethany can use to compute her dependent care credit?

A. $1,320 B. $3,000 C. $3,600 D. $6,000

[9] Mr. and Mrs. Wilson’s 5-year-old son, Dennis, goes to kindergarten in the morning. In the afternoon, he attends a day-care center. The cost of sending Dennis to the day-care center for the current year was $3,400. Mr. Wilson’s earned income was $40,000, and Mrs. Wilson’s earned income was $2,100. Based on the above information, the amount of the Wilson’s work- related expenses used to figure the child and dependent care credit for the current year cannot be more than

A. $2,100 B. $3,000 C. $3,400 D. $6,000

[10] Mr. Bently works and maintains a home for himself, his wife, and their two children. During the current year, Mr. Bently had earned income of $50,000. They file a joint return and have itemized deductions of $8,200. Mrs. Bently was a full-time student for 5 months in the current year and had no earned income. They paid $3,000 of qualified work-related expenses while Mrs. Bently was a student. What is the amount of child and dependent care credit for the current year?

A. $0 B. $500 C. $625 D. $875

[11] Mr. and Mrs. Donegan are filing a joint return for the current year. Mr. Donegan was employed the full year. Mrs. Donegan was a full-time student for 9 months and was not employed at any time during the year. For the 9 months that Mrs. Donegan was a student, she paid

$500 per month to a child care center to care for their 4-year-old daughter. For purposes of the Child Care Credit, Mrs. Donegan is considered to have current-year earned income of

A. $2,250 B. $3,000 C. $4,500 D. $6,000

[12] All of the following statements regarding the “Credit for the Elderly and the Permanently and Totally Disabled” are true except

A. The amount of the credit is based on age and filing status.

B. Married persons living together must file a joint return to be eligible for the credit.

C. A person under 65 must be retired on disability and must have been permanently and totally disabled upon retirement to be eligible for the credit.

D. The amount of the credit that is not absorbed can be carried back 3 years or carried forward 5 years.

[13] Mr. K is 67 years old, single, and retired. During the current year, he received a taxable pension from his former employer in the amount of $4,000. His adjusted gross income is $14,000, and he received $500 of Social Security benefits. His tax before credits is $205. What is Mr. K’s credit for the elderly?

A. $0 B. $40 C. $188 D. $675

[14] Mr. and Mrs. Robinson are both over age 65 and file a joint return. Their adjusted gross income was $26,700. The Robinsons’ tax before credits is $10. How much can they claim as a credit for the elderly?

A. $0

B. $10

C. $(120) D. $1,125

[15] For the current year, Gannon Corporation has U.S. taxable income of $500,000, which includes $100,000 from a foreign division. Gannon paid $45,000 of foreign income taxes on the income of the foreign division. Assuming Gannon’s U.S. income tax for the current year before credits is $105,000, its maximum Foreign Tax Credit for the current year is

A. $45,000 B. $20,000 C. $21,000 D. $24,000

[16] The following information pertains to Wald Corporation’s operations for the current year:

Worldwide taxable income

U.S. source taxable income

U.S. income tax before Foreign Tax Credit

Foreign nonbusiness-related interest earned

Foreign income taxes paid on nonbusiness-related interest earned Other foreign source taxable income Foreign income taxes paid on other foreign source taxable income

$300,000 180,000 63,000

30,000

6,000 90,000

30,000

What amount of Foreign Tax Credit may Wald claim for the current year?

A. $18,900 B. $24,900 C. $36,000 D. $25,200

[17] On April 1, 2018, Toni Painta hired a qualified ex-felon to perform duties related to her business. Toni paid the employee a total of $6,500 during 2018. The employee worked a total of 800 hours during the year. What is the amount Toni may claim as a work opportunity credit?

A. $0

B. $2,400 C. $2,600 D. $3,000

Answer 1

Solution to question 1 is as follows:

1. Incorrect

Reason: Expenses are deducted from gross income to arrive at adjusted gross income.

2. Incorrect

Reason: Non taxable income (or the income exempt from tax) is subtracted from the adjusted gross income to arrive at the taxable income. Therefore this option is incorrect

3. Correct

Reason: Earned income credit means the tax credit that a taxpayer can avail or subtract from the total tax that he owes to the state.

4. Incorrect

Reason: To subtract an earned income credit, the tax payer should have some tax withheld from his wages so as to claim the credit.

Thus, the correct answer is C) Earned income credit can be subtracted from tax owed, or can result in a refund, but only if the taxpayer had withheld tax from wages.