Exam 12: Tax Credits and Payments

John owns and operates a real estate agency as a sole proprietor.On a full-time basis, he employs his 17-year old daughter as a receptionist and his 22-year old son as a bookkeeper.Only the son is subject to FICA withholding.

A taxpayer's earned income credit is dependent on the number of his or her qualifying children.

The education tax credits (i.e., the American Opportunity credit and the lifetime learning credit) are available to help defray the cost of higher education regardless of the income level of the taxpayer.

The low-income housing credit is available to low-income tenants who reside in qualifying low-income housing.

Expenses that are reimbursed by a taxpayer's employer under a dependent care assistance program canalso qualify for the credit for child and dependent care expenses.

Some (or all) of the tax credit for rehabilitation expenditures will have to be recaptured if the rehabilitated property is disposed of prematurely or if it ceases to be qualifying property.

The ceiling amounts and percentages for 2012 for the two portions of the self-employment tax are: Social Security portion Medicare portion

Discuss the treatment of unused general business credits.

An employer calculates the amount of income tax withheld from salary or wages based on the information an employee provides on the following form:

During 2012, Barry (who is single and has no children) earned a salary of $13,000.He is age 30.His earned income credit for the year is:

Which of the following best describes the treatment applicable to unused business credits?

Bob and Sally are married, file a joint tax return, have AGI of $108,000, and have two children.Del is beginning her freshman year at State College during Fall 2012, and Owen is beginning his senior year at Southwest University during Fall 2012.Owen completed his junior year during the Spring semester of 2010 (i.e., he took a "leave of absence" during the 2011-2012 school year).Both Del and Owen are claimed as dependents on their parents' tax return.Del's qualifying tuition expenses and fees total $5,000 for the Fall semester, while Owen's qualifying tuition expenses were $6,100 for the Fall 2012 semester.Del's room and board costs were $3,200 for the Fall semester.Owen did not incur room and board costs since he lived with his aunt and uncle during the year.Full payment is made for the tuition and related expenses for both children at the beginning of each semester.In addition to the children's college expenses, Bob also spent $3,000 on professional education seminars during the year in order to maintain his license as a practicing dentist.Bob attended the seminars during July and August 2012.Compute the available education tax credits for Bob and Sally for 2012.

Black Company paid wages of $360,000, of which $80,000 was qualified wages for the work opportunity tax credit under the general rules.Black Company's deduction for wages for the year is:

Several years ago, Tom purchased a structure for $300,000 that was originally placed in service in 1929.Three and one-half years ago he incurred qualifying rehabilitation expenditures of $600,000.In the current year, Tom sold the property in a taxable transaction.Calculate the amount of the recapture of the tax credit for rehabilitation expenditures.

Nonrefundable credits are those that reduce the taxpayer's tax liability but are not paid when the amount of the credit (or credits) exceeds the taxpayer's tax liability.

Cheryl is single, has one child (age 6), and files as head of household during 2012.Her salary for the year is $19,000.She qualifies for an earned income credit of the following amount:

The tax benefits resulting from tax credits and tax deductions are never affected by the tax rate bracket of the taxpayer.

Susan generated $55,000 of net earnings from the conduct of a tax preparation business that she operated during the tax-filing season.She also received wages of $60,000 from her full-time job.Compute the self-employment taxes due for 2012.

Pat generated self-employment income in 2012 of $76,000.The self-employment tax is:

The calculation of FICA and the self-employment tax both involve two components: the Social Security portion and the Medicare portion, each portion of which is imposed on the same base amounts.