Chapter 14 Answer - Chapter 14 Answer Learning Objective 1...

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Chapter 14 Answer Learning Objective 1. Child Tax Credit 1 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 2 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 3 Deana and Joseph are married and have two children ages 17 and 15. Their adjusted gross income for the current year is $100,000. What amount can they claim for the child tax credit? a. $ - 0 - b. $ 600 c. $1,000 d. $1,200 e. $2,000 C 4 Maurice and Lana are married and have two children ages 12 and 10. Their adjusted gross income for the current year is $120,000. What amount can they claim for the child tax credit? a. $ 500 b. $ 800 c. $1,000 d. $1,500 e . $2,000 D 5 Susan files as head of household and has three dependent children ages 12, 14, and 16. Her AGI is $85,000. How much can Susan claim for the child tax credit for the current year? a. $3,000 b. $2,750 c. $2,500 d. $0 e. Other Amount C Answer: Phase-out Rule: Child tax credit ---- Phased out at rate of $50 for every $1,000 (or part thereof) of AGI in excess of $110,000 if married filing jointly $75,000 if single or head of household Phase-out: (85,000-75,000)*50/1000=500 1000*3-500=2500 Learning Objective 2. Earned Income Tax Credit 6 Individuals without children are eligible for the earned income credit if they meet all the following conditions except A) file married filing separately.
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B) at tax year end are at least age 25 but not more than age 64. C) for the tax year are not a dependent of another taxpayer. D) the United States is their principal place of residence for more than one-half of the tax year. Answer: A Explanation: A) Married individuals must file jointly to be eligible. Page Ref.: I:14-23 7 A taxpayer will be ineligible for the earned income credit if he or she has disqualified investment income of more than $3,400 in 2015. Disqualified income includes all the following except A) net capital gains. B) tax-exempt interest. C) net rental income. D) self-employment income. Answer: D Explanation: D) Self-employment income is classified as earned income rather than investment income. Page Ref.: I:14-23 8 Which one of the following is a refundable credit? A) earned income credit B) child and dependent care credit C) lifetime learning credit D) credit for the elderly and disabled Answer: A Explanation: A) The earned income credit is refundable.
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  • Fall '12
  • MayYueZhang
  • Financial Accounting, Taxation in the United States, tax credit, Page Ref.

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