Federal Income Tax

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Problem 7-3 Earned Income Credit (LO 7.2) Select either "Yes" or "No" to indicate whether the statement is one of the rules that all taxpayers must meet in order to claim the earned income credit (EIC). . AGI may not be higher than set limits b. Foreign income exclusion not permitted C. Investment income cannot exceed $3,600 (2019 limit) d. Married filing separately not allowed e. Must have earned income f. Taxpayer, spouse and all qualifying children must have a SSN g. Only U.S. citizens can claim the credit h. Taxpayer must have at least one qualifying childProblem 7-4 Earned Income Credit (L0 7.2) Select either "Yes" or "No" to indicate if the following is a rule that applies to taxpayers without a qualifying child looking to claim the EIC. Cannot be claimed as a dependent by another a. b. Cannot be a qualifying child c. Must have lived in the U.S. for the entire year d. Taxpayer must be at least age 25 but less than age 65 Problem 7-5 Earned Income Credit (L0 7.2) Select either "Yes" or "No" to indicate if the statement applies to taxpayers with a qualifying child looking to claim the EIC. The child must meet the support test The taxpayer cannot be the qualifying child of another taxpayer Qualifying child cannot be claimed by more than one person The child must live in a U.S. home for the entire tax year Problem 7-8 Earned Income Credit (L0 7.2) What is the maximum investment income a taxpayer is allowed to have and still be allowed to claim the earned income credit? ${:1 Why is there an investment income limit in the tax law regarding the credit? The earned income credit is meant to assist' \" Problem 7-9 Child and Dependent Care Credit (L0 7.3) Calculate the amount of the child and dependent care credit allowed before any tax liability limitations or other credits for 2019 in each of the following cases, assuming the taxpayers had no income other than the stated amounts. CHILD AND DEPENDENT CARE CREDIT PERCENTAGES Adjusted Gross Income Applicable Percentage M But Not Over $0 - $15,000 35% 15,000 - 17,000 34% 17,000 - 19,000 33% 19,000 - 21,000 32% 21,000 - 23,000 31% 23,000 - 25,000 30% 25,000 - 27,000 29% 27,000 - 29,000 28% 29,000 - 31,000 27% 31,000 - 33,000 26% 33,000 - 35,000 25% 35,000 - 37,000 24% 37,000 - 39,000 23% 39,000 - 41,000 22% 41,000 - 43,000 21% 43,000 - No limit 20% a. William and Carla file a joint tax return. Carla earned $27,500 during the year, while William attended law school full-time for 9 months and earned no income. They paid $3,500 for the care of their 3-year-old child, Carl. b. Raymond and Michele file a joint tax return. Raymond earned $32,500 during the year, while Michele earned $9,000 for the year from a part-time job. They paid $7,000 for the care of their two children under age 13. c. Beth is a single taxpayer who has two dependent children under age 5. Beth earned $25,500 in wages during the year and paid $6,700 for the care of her children. $Problem 7-15 The Affordable Care Act (L0 7.4) Susan and Stan Collins live in Iowa, are married and have two children ages 6 and 10. In 2019, Susan's income is $41,214 and Stan's is $12,000 and both are self- employed. They also have $500 in interest income from tax exempt bonds. The Collins enrolled in health insurance for all of 2019 through their state exchange but did not elect to have the credit paid in advance. The 2019 Form 1095-A that the Collins received from the exchange lists the following information: Annual premiums $9,800 Annual premium for the designated silver plan in the state $10,800 Federal Poverty Line for a family of four $25,100 Compute the Collins' premium tax credit for 2019. Round any division to two decimal places before converting to a percent. If required, round your final answer to the nearest dollar. $[:1 Problem 7-16 The Affordable Care Act (L0 7.4) Susan and Stan Collins live in Iowa, are married and have two children ages 6 and 10. In 2019, Susan's income is $41,214 and Stan's is $12,000 and both are self- employed. They also have $500 in interest income from tax exempt bonds. The Collins enrolled in health insurance for all of 2019 through their state exchange and elected to have the credit paid in advance. The 2019 Form 1095-A that the Collins received from the exchange lists the following information: Annual premiums $9,800 Annual premium for the designated silver plan in the state $10,800 Total advance payment of the premium tax credit $9,200 The Federal Poverty Line for a family of four is $25,100. Table for Repayment of the Credit Amount Taxpayers Other Single Than Single Less than 200% $300 $600 At least 200% but less than 300% 800 1,600 At least 300% but less than 400% 1,325 2,650 At least 400% No limit No limit Calculate the excess advance premium tax credit and the repayment amount for 2019. Round any division to two decimal places before converting to a percent. G G Excess advance premium tax credit Repayment amount Problem 7-18 Education Tax Credits (L0 7.5) Select either "True" or "False" for each of the following statements regarding the types of education covered by the American Opportunity tax Credit and the Lifetime Learning Credit. a. The American Opportunity tax credit covers only the rst 4 years of vI post-secondary education with at least a half-time course load, so it encourages students to continue their education after high school. I). The Lifetime Learning Credit may be claimed for any year of college or i 'I graduate school, and may also be claimed for educational courses taken during any stage of life so it encourages lifetime ongoing education. c. For the American Opportunity tax credit, room and board, 'I transportation costs, and personal living expenses are qualifying expenses. d. The student can be enrolled in just one course and still get the Lifetime i VI Learning Credit. Problem 7-19 (Algorithmic) Education Tax Credits (LO 7.5) Janie graduates from high school in 2019 and enrolls in college in the fall. Her parents (who file a joint return) pay $7,975 for her tuition and fees. If required, round your computations to the nearest whole value. a. Assuming Janie's parents have AGI of $175,400, what is the American Opportunity tax credit they can claim for Janie? tA b. Assuming Janie's parents have AGI of $70,160, what is the American Opportunity tax credit they can claim for Janie?Problem 7-20 Education Tax Credits (L0 7.5) Jasper is single and a computer software consultant with a college degree. He feels that one of the reasons for his success is that he continually updates his knowledge by taking classes at the local college in various areas related to software design and information technology. This year he spent $2,000 on course tuition and fees. a. Assuming Jasper has AGI of $92,000, how much lifetime learning credit can Jasper claim on his tax return? v If Jasper were married and supporting a wife who was not working, how much lifetime learning credit can Jasper claim? w b. Assuming Jasper is single and has AGI of $45,000, how much lifetime learning credit can Jasper claim on his tax return? $[:1 Problem 7-21 Foreign Tax Credit (L0 7.6) Martha and Lew are married taxpayers with $400 of foreign tax withholding from dividends in a mutual fund. They have enough foreign income from the mutual fund to claim the full $400 as a foreign tax credit. Their tax bracket is 24 percent and they itemize deductions. Should they claim the foreign tax credit or a deduction for foreign taxes on their Schedule A? The foreign tax deduction will result in a $[:]tax benefit where as claiming the foreign tax credit yields a $:] tax benet. Therefore, the taxpayers should i V Problem 7-22 Adoption Expenses (L0 7.7) Carl and Jenny adopt a Korean orphan. The adoption takes 2 years and two trips to Korea and is nalized in 2019. They pay $7,000 in 2018 and $7,500 in 2019 for qualified adoption expenses. In 2019, Carl and Jenny have AGI of $150,000. If an amount is zero, enter "0". If required, carry any division out to four decimal places and round final answers to the nearest dollar. a. What is the adoption credit Carl and Jenny can claim in 2019? D b. How much credit could they claim if the adoption falls through and is never nalized? U c. How much credit could they claim if their AGI was $217,160? D Problem 7-24 Energy Credits (L0 7.8) In 2019, Jeff spends $6,000 on solar panels to heat water for his main home. What is Jeff's credit for his 2019 purchases? $[:1 Problem 7-25 Low-Income Retirement Plan Contribution Credit (L0 7.9) George and Amal file a joint return in 2019 and have AGI of $39,800. They each make a $1,600 contribution to their respective IRAs. Assuming that they are not eligible for any other credits, what is the amount of their Saver's Credit? $l:]