Test Bank For Income Tax Fundamentals 2016 34th Edition

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Test Bank For Income Tax Fundamentals 2016 34th Edition

Chapter 6 — Credits and Special Taxes

1. What would reduce income taxes more: a $100 tax credit or a $100 tax deduction?

ANSWER:   Tax credits reduce taxes more than deductions since credits are subtracted directly from the income tax. Deductions are subtracted from income before the income tax is calculated and therefore reduce taxes only by the tax rate (percentage) in effect.

POINTS:   1

DIFFICULTY:   Moderate

QUESTION TYPE:   Essay

HAS VARIABLES:   False

LEARNING OBJECTIVES:   ITF.WABG.16.LO:6-01 – LO:6-01

NATIONAL STANDARDS:   United States – BUSPROG: Analytic

STATE STANDARDS:   United States – AK – AICPA: FN-Reporting

KEYWORDS:   Bloom’s: Comprehension

2. The child tax credit is not available for children ages 17 and older.

  a.  True

  b.  False

ANSWER:   True

POINTS:   1

DIFFICULTY:   Easy

QUESTION TYPE:   True / False

HAS VARIABLES:   False

LEARNING OBJECTIVES:   ITF.WABG.16.LO:6-01 – LO:6-01

NATIONAL STANDARDS:   United States – BUSPROG: Analytic

STATE STANDARDS:   United States – AK – AICPA: FN-Reporting

KEYWORDS:   Bloom’s: Knowledge

3. The child tax credit is $1,000 per qualifying child unless it is phased out due to higher levels of parental income.

  a.  True

  b.  False

ANSWER:   True

POINTS:   1

DIFFICULTY:   Easy

QUESTION TYPE:   True / False

HAS VARIABLES:   False

LEARNING OBJECTIVES:   ITF.WABG.16.LO:6-01 – LO:6-01

NATIONAL STANDARDS:   United States – BUSPROG: Analytic

STATE STANDARDS:   United States – AK – AICPA: FN-Reporting

KEYWORDS:   Bloom’s: Knowledge

4. Denice is divorced and files a single tax return claiming her two children, ages 7 and 9, as dependents. Her AGI for 2015 is $81,500. Denice’s child tax credit for 2015 is:

  a.  $0

  b.  $350

  c.  $1,000

  d.  $1,650

  e.  $2,000

ANSWER:   d

RATIONALE:   (2 × $1,000) – [($81,500 – $75,000) / $1,000 rounded up to the nearest whole number × $50]

POINTS:   1

DIFFICULTY:   Moderate

QUESTION TYPE:   Multiple Choice

HAS VARIABLES:   False

LEARNING OBJECTIVES:   ITF.WABG.16.LO:6-01 – LO:6-01

NATIONAL STANDARDS:   United States – BUSPROG: Analytic

STATE STANDARDS:   United States – AK – AICPA: FN-Reporting

KEYWORDS:   Bloom’s: Comprehension

5. Curly and Rita are married, file a joint return, and have two dependent children, ages 11 and 13. Their AGI is $117,000. By how much is their child credit reduced in 2015?

  a.  $0

  b.  $300

  c.  $350

  d.  $700

  e.  $7,000

ANSWER:   c

RATIONALE:   ($117,000 – $110,000) / $1,000 rounded up to the nearest whole number × $50

POINTS:   1

DIFFICULTY:   Challlenging

QUESTION TYPE:   Multiple Choice

HAS VARIABLES:   False

LEARNING OBJECTIVES:   ITF.WABG.16.LO:6-01 – LO:6-01

NATIONAL STANDARDS:   United States – BUSPROG: Analytic

STATE STANDARDS:   United States – AK – AICPA: FN-Reporting

KEYWORDS:   Bloom’s: Comprehension

6. In 2015, the child tax credit available to married taxpayers filing jointly is phased out, beginning at:

  a.  $55,000

  b.  $75,000

  c.  $95,000

  d.  $110,000

ANSWER:   d

POINTS:   1

DIFFICULTY:   Easy

QUESTION TYPE:   Multiple Choice

HAS VARIABLES:   False

LEARNING OBJECTIVES:   ITF.WABG.16.LO:6-01 – LO:6-01

NATIONAL STANDARDS:   United States – BUSPROG: Analytic

STATE STANDARDS:   United States – AK – AICPA: FN-Reporting

KEYWORDS:   Bloom’s: Knowledge

7. Bob and Carol file their tax returns using the married filing jointly status. Their AGI is $132,500. They have two children, ages 11 and 7. How much child tax credit can Bob and Carol claim for their two children?

  a.  $0

  b.  $850

  c.  $875

  d.  $1,150

  e.  None of the above is correct.

ANSWER:   b

8. a. Norm and Linda are married, file a joint return, and have one 5-year-old child. Their adjusted gross income is $136,000. What is their child credit for the current year?

b. If Norm and Linda had a 3-year-old as well as the 5-year-old and an 18-year-old from Linda’s first marriage, what would their child tax credit be for the current year?

c. In b. above, how many qualifying children do Norm and Linda have? Explain.

ANSWER:   a. $0. They are above the phase-out limit. $50 × (($136,000 – $110,000) / $1,000) = $1,300, which is greater than the credit of $1,000 for one child, so no credit is available.

b. $700 = $2,000 – [$50 × (($136,000 – $110,000) / $1,000)].

c. Two. The 18-year-old does not qualify because of the age limitation.

POINTS:   1

DIFFICULTY:   Challenging

QUESTION TYPE:   Subjective Short Answer

HAS VARIABLES:   False

LEARNING OBJECTIVES:   ITF.WABG.16.LO:6-01 – LO:6-01

NATIONAL STANDARDS:   United States – BUSPROG: Analytic

STATE STANDARDS:   United States – AK – AICPA: FN-Reporting

KEYWORDS:   Bloom’s: Comprehension

9. Calculate the child tax credits for the following taxpayers. Please show your work.

a. Ninfa is a single mother with 8-year-old and 9-year-old dependent sons and has $50,000 of AGI.
b. Sharon and Mark have one dependent 2-year-old child and $126,300 of AGI.
c. Carol is single and has one dependent 18-year-old son and $21,000 of AGI.

ANSWER:   a. $2,000. Ninfa’s income is less than the phase-out range for a single taxpayer, so two child credits are allowed at $1,000 each.

b. $150, calculated as $126,300 – $110,000 = $16,300; $16,300 / $1,000 = 16.3, rounds to 17; 17 × $50 = $850 of the $1,000 child credit, phased out due to AGI limits.

c. $0. Carol’s son is too old to qualify for the child credit.

POINTS:   1

DIFFICULTY:   Challenging

QUESTION TYPE:   Subjective Short Answer

HAS VARIABLES:   False

LEARNING OBJECTIVES:   ITF.WABG.16.LO:6-01 – LO:6-01

NATIONAL STANDARDS:   United States – BUSPROG: Analytic

STATE STANDARDS:   United States – AK – AICPA: FN-Reporting

KEYWORDS:   Bloom’s: Comprehension

10. ​To qualify for the additional child tax credit

  a.  ​the typical child yax credit must be limited by tax liability

  b.  ​the taxpayer must have earned income of over $3,000

  c.  ​the taxpayer must have at least one qualifying child

  d.  ​all of the above are required to qualify for the additional child tax credit

ANSWER:   d

POINTS:   1

DIFFICULTY:   Easy

QUESTION TYPE:   Multiple Choice

HAS VARIABLES:   False

LEARNING OBJECTIVES:   ITF.WABG.16.LO:6-01 – LO:6-01

NATIONAL STANDARDS:   United States – BUSPROG: Analytic

STATE STANDARDS:   United States – AK – AICPA: FN-Reporting

KEYWORDS:   Bloom’s: Knowledge

RATIONALE:   (2 × $1,000) – [($132,500 – $110,000) / $1,000 rounded up to the nearest whole number × $50]

POINTS:   1

DIFFICULTY:   Moderate

QUESTION TYPE:   Multiple Choice

HAS VARIABLES:   False

LEARNING OBJECTIVES:   ITF.WABG.16.LO:6-01 – LO:6-01

NATIONAL STANDARDS:   United States – BUSPROG: Analytic

STATE STANDARDS:   United States – AK – AICPA: FN-Reporting

KEYWORDS:   Bloom’s: Comprehension