Chapt6 Solutions 2013 Funamental Tax

CHAPTER 6

CREDITS AND SPECIAL TAXES

Group 1 - Multiple Choice Questions

1. D (Section 6.1) 11. C (Section 6.4)

2. C (Section 6.1) 12. C ($100,000/300,000

3. C (Section 6.2) x $90,000) (Section 6.5)

4. D (Section 6.3) 13. C (Section 6.6)

5. C (Section 6.4) 14. A (Section 6.6)

6. D (Section 6.4) 15. C (Section 6.6)

7. E (Section 6.4) 16. C (Section 6.6)

8. A (Section 6.4) 17. E (Section 6.8)

9. C (Section 6.4) 18. E $35,000 each (Section 6.10)

10. D (Section 6.4) 19. B (Section 6.10)

Group 2 - Problems

1. a. $750. $79,600 – $75,000 = $4,600 ÷ 1,000 = 4.6, which is rounded up to 5; 5 x $50 = $250 of $1,000 child credit is phased out due to AGI limits.

b. $2,000. The income is less than the phase out range for married taxpayers, so two child credits are allowed at $1,000 each.

c. $1,450. $120,400 – $110,000 = $10,400 ÷ 1,000 = 10.4, which is rounded up to 11; 11 x $50 = $550 of the $2,000 child credit is phased out due to AGI limits. $2,000 – $550 = $1,450 (Section 6.1)

2. The earned income credit is designed to provide financial relief to low income taxpayers. Taxpayers may receive a refund for the credit even though the credit exceeds their tax liability. (Section 6.2)

3. Earned income credit:

Amount from Earned Income Credit Table for earned income of $16,100 $4,743

Amount from Earned Income Credit Table for AGI of $16,400 4,680

Lesser of two amounts $4,680

Diane must compute the credit using both earned income and AGI because her AGI exceeds the

threshhold amount of $15,740. (Section 6.2)

4. Earned income credit

See Schedule EIC on page 139. (Section 6.2)

5. A taxpayer may have a maximum of $2,950 of investment income in 2008 and still claim the earned income credit. The likely reason for the investment income limit is that the government intends the earned income credit to give a helping hand to the...