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.
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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