AF 450 – Federal Taxation I
Dr. Julia M. Camp
Solutions to Suggested Problems
I2-3, I2-4, I2-5, I2-7, I2-8, I2-10, I2-11, I2-14, I2-29,
I2-55, I2-56, I2-57
A deduction is an amount that is subtracted from income, while a credit is an
amount that is subtracted from the tax itself.
In general, a $10 credit is worth more than a $10 deduction because the credit
results in a direct dollar for dollar tax savings.
The savings from a deduction depends on the tax
bracket that applies to the taxpayer.
If a refundable credit exceeds the taxpayer's tax liability, the taxpayer will receive
a refund equal to the excess.
In the case of nonrefundable credits the taxpayer will not receive a
refund, but may be entitled to a carryover or carryback.
pp. I:2-4 through I:2-6.
All dependents (1) must have social security numbers reported on the taxpayer’s return,
(2) must meet a citizenship test, (3) cannot normally file a joint return and (4) cannot claim
others as dependents.
Qualifying children must (1) be the taxpayer’s child or sibling, (2) be
under 18, a full-time student under 24, or disabled, (3) live with the taxpayer, and (4) not be self-
Other dependents must (1) be related to the taxpayer (2) have gross income less than
the amount of the personal exemption, and (3) receive over one-half of their support from the
Support includes amounts spent for food, clothing, shelter, medical and dental
care, education, and the like.
Support does not include the value of services rendered by the
taxpayer for the dependent nor does it include a scholarship received by a son or daughter of the
When several individuals contribute to the support of another, it is possible
for members of the group to sign a multiple support agreement that enables one member of the
group to claim the dependency exemption.
Also, in the case of divorced couples, the parent with
custody for over half of the year receives the dependency exemption even if that parent did not
provide more than 50% of the child's support.
Similarly, in the case of written agreement, the
dependency exemption can be given to the noncustodial parent even if that parent provided 50%
or less of the child's support.
The value of an automobile given to an individual may represent support for that
The automobile must be given to the individual and must be used exclusively by the
pp. I:2-12 through I:2-15.
In general, it is the taxpayer's gross income that determines whether the individual
must file a return.
The specific dollar amounts are listed in the text.
Certain individuals must
file even if they have less than the specified gross income amounts.
These include taxpayers
who receive advance payments of the earned income credit and taxpayers with $400 or more of
Dependent individuals must file if they have either (1) unearned
income over $850 or (2) total gross income in excess of the standard deduction.