Acct411chapter9homework05 - Chapter 9 Homework 1. A tax...

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Chapter 9 Homework 1. A tax credit is a direct reduction in the tax liability, while a deduction reduces taxable income before applying the tax rate. In the 28 percent bracket, a $2,000 deduction would result in a $560 tax savings; the credit would be only $400. In the 15 percent bracket, the deduction would be worth only $300; so the credit would be more valuable. 2. Nonrefundable credits can only be used to up to the taxpayers total tax liability. Refundable credits can exceed the tax on taxable income and may function like a negative income tax and allow the taxpayer to receive a larger refund than the taxes paid in during the year. 3. The household and dependent care credit is based on adjusted gross income and the credit rate is progressive. 20% and 35% are the minimums and maximums. 4. Dependent care expenses qualifying for the credit cannot exceed the earned income of the lower paid spouse. If a spouse is a student without an income or incapable of self-care, a set income amount is assumed for purposes of the credit. $250 per month (or $500 a month for two or more children) is assumed. 5. Divorced or separated parents having custody of a child under age 13 or a physically or mentally handicapped child are not required to claim the dependency exemption to qualify for the household and dependent care credit. 9. The credit for the elderly is designed for members of the target class who have very low income
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This note was uploaded on 04/08/2008 for the course ACCT 411 taught by Professor Brennen during the Spring '08 term at Minnesota State University, Mankato.

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Acct411chapter9homework05 - Chapter 9 Homework 1. A tax...

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