Question

[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

14. A (0).

Even though the 2 spouses qualify for taking the credit for the elderly,their gross total is $26,700.They cannot take the credit for the elderly if the gross total income is more than or equal to 25000.

15. C ($21000).

U.S. income tax for the current year attributable to the $100,000 from a foreign division is

= $105,000 * $100,000 / $500,000

= $34000. This is the maximum foreign tax credit to be claimed. The rest will be carried over to the following year.

16. B ($24900)

The Foreign tax credit limit is the proportion of the tax payer's tentative U.S income tax (before the foreign tax credit ) that the tax payer's foreign taxable income bears to his or her worldwide taxable income for the year. The limit must be applied separately to non business interest income.

Tax on Non business interest income computation:

($30000 / $300000) * $63000 = $6300

Foreign taxes paid is less than the limit, so fully creditable of $6000.

Tax on other foreign source taxable income computation:

($90000 / $300000) * $63000 = $18900.

Total credit = $6000 + $18900 = $24900

17. C ($2,600)

An employer can earn a tax credit equal to 25% or 40% of a new employees first year wages, up to the maximum for the target group to which the employee belongs. Employers can earn 25% if the employee works at least 120 hours and 40% if the employee works at least 400 hours.

In the given question the employee worked for 800 hours. So the employer can claim 40% of 6500.

Work opportunity credit = 6500 * 40% = $2600.