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Problem set on credits

Problem set on credits - in qualifying higher education...

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1. Tom and Sally have three children, ages 6, 15, and 17. (a) What is their child tax credit? (b) What is their credit if their AGI is \$125,016? ANS: (a) \$2,000 (\$1,000 for each child under 17). (b) Reduce the credit by \$800 to \$1,200. \$125,016 - \$110,000 = \$15,016. Round up to \$16,000 and reduce the credit by \$50 per thousand (\$50 x 16 - \$800; \$2,000 - \$800 = \$1,200). 2. Ted and Cindy have 4 children, ages 3, 5, 12, and 15. They spend a total of \$11,400 on child care expenses. They each have earned income of \$40,000 and their joint AGI is \$90,000. What is their child care credit? ANS: \$1,200. They have three qualifying children (under 13), but the maximum qualifying expenses they can use is \$3,000 for one child, and another \$3,000 for two or more, for a total of just \$6,000. At their AGI level, the credit is 20% of the qualifying expenses: \$6,000 x 20% = \$1,200. 3. Sam and Doris have three children in college (all within their first 4 years of college). They pay \$14,000
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Unformatted text preview: in qualifying higher education expenses for one, \$8,000 for the second, and \$3,600 for the third. (a) What is their education credit? (b) How does your answer change if the second and third children are in their 5 th or higher year of higher education? ANS: (a) The American Opportunity credit per student is 100% of the first \$2,000 of expenses, and 25% of the next \$2,000. So for the first two students, the credit is \$2,500 each. For the third student the credit is \$2,000 + (25% x \$1,600) = \$2,400. Total credit: \$7,400. (b) In this case, the credit for student #1 would still be \$2,500. For the remaining students, tho, the Lifetime Learning credit applies and it is limited to 20% of the first \$10,000 of total expenses paid. Here, total expenses = \$11,600 (\$8,000 + \$3,600). So the credit is \$10,000 x 20% = \$2,000. Total credit for all three students: \$4,500....
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