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WorksheetsStudy Unit 8: Tax Credits and Payments
Total questions: 130
Worksheet time: 1hrs 5mins
In 2022, Ruth had wages of $34,000, and her husband John’s wages were $27,000. They have three children ages 3, 6, and 9. They paid a total of $7,200 to Creative Child Care School, Inc. Assuming a 20% credit rate, what will be their Child and Dependent Care Credit?
$1,440
$1,200
$6,000
$7,200
For the current year, Gannon Corporation has U.S. taxable income of $500,000, which includes $100,000 from a foreign division. Gannon paid $45,000 of foreign income taxes on the income of the foreign division. Assuming Gannon’s U.S. income tax for the current year before credits is $105,000, its maximum Foreign Tax Credit for the current year is
$9,000
$45,000
$21,000
$84,000
Which one of the following could prevent an individual from qualifying for the Child and Dependent Care Credit?
Unearned income of more than $400.
Paying for care for more than one qualifying person.
Not identifying the care provider on the tax return.
Paying for child care while looking for work.
Jerry has two dependent children, Greg and Mandy, who are attending an accredited college in 2022. Greg, a fifth-year senior since January 1, spent $7,000 for tuition and fees. Mandy, a freshman with no prior post-secondary education, had tuition expenses of $4,000. Jerry meets all the income and filing status requirements for the education credits. There is no tax-free assistance to pay these expenses. Jerry’s tax liability before credits equals $14,000. What is the maximum credit that Jerry may claim on his 2022 tax return?
$2,200 Lifetime Learning Credit.
$5,000 AOTC.
$2,500 AOTC and $1,000 Lifetime Learning Credit.
$2,500 AOTC and $1,400 Lifetime Learning Credit.
Liz incurred qualified adoption expenses of $17,000 in 2022. Liz’s AGI for 2022 was $60,000. What is the amount of the credit Liz can take in 2022 for the adoption expenses she incurred?
$0
$7,500
$14,890
$17,000
For which of the following dependent children will a parent NOT be allowed a Child Tax Credit?
15-year-old daughter.
12-year-old foster child.
19-year-old stepchild.
16-year-old grandchild.
Mr. and Mrs. Robinson are both over age 65 and file a joint return. During the current year, they received $4,000 in nontaxable benefits from Social Security. This was their only nontaxable income. Their adjusted gross income was $12,000. How much can they claim as tentative credit for the elderly?
$0
$225
$375
$525
The Earned Income Credit is available to
Persons with a qualifying child.
Persons without a qualifying child.
Persons who are age 40.
All of the answers are correct.
Which of the following is NOT required for a taxpayer to be eligible for the Premium Tax Credit?
The taxpayer’s health insurance is purchased through the Marketplace.
The taxpayer is not eligible to be claimed as a dependent by another taxpayer.
The taxpayer does not file a separate return if married, unless an exception applies.
The taxpayer is eligible for coverage through an employer plan.
Brad, age 19, is a full-time student in 2022. Brad works a part-time job and contributes $500 to his IRA account. He has AGI of $15,000 for the year and cannot be claimed as a dependent by another taxpayer. Assuming that Brad files as a single taxpayer, what amount of Retirement Savings Contributions Credit may Brad claim in 2022?
$250
$0
$100
$50
Which one of the following statements about the foreign operations of Nora Corporation (a domestic corporation) is true?
Nora may take a credit, but not a deduction, for the income taxes paid to a foreign country.
Nora may take a deduction, but not a credit, for the income taxes paid to a foreign country.
Nora may elect to take either a credit or a deduction, but not both, for the income taxes paid to a foreign country.
Nora may exclude both revenues and expenses of the foreign operations from its federal income tax return.
The Minimum Tax Credit (MTC) allocable for the current year is limited to
Current-year gross regular tax (reduced by certain credits) minus current-year tentative minimum tax.
Current-year gross regular tax (without regard to any credits) minus current-year tentative minimum tax.
Current-year gross regular tax (reduced by certain credits) plus current-year tentative minimum tax.
Current-year gross regular tax (reduced by certain credits) minus previous-year tentative minimum tax.
If a taxpayer has a dependent that (s)he cannot claim for the child tax credit, the dependent may still qualify the taxpayer for which $500 credit?
The alternative minimum tax credit.
The state and local income tax credit.
The credit for other dependents.
The credit for foreign dependents.
Ginger is a United States citizen who paid the following 2022 foreign income taxes:
• $10,000 tax paid to England on consulting fee income
• $5,000 tax paid to Spain on earned income for which she claimed the foreign earned income exclusion
• $1,000 tax paid to France, which she deducted as an itemized deduction
These were Ginger’s only sources of income during 2022. Her U.S. tax liability was $23,000. What amount of Foreign Tax Credit can she claim on her 2022 return?
$16,000
$0
$10,000
$7,000
Which of the following is a disqualification for the Child and Dependent Care Credit?
Head of household filing status.
Making child care payments to relatives.
Paying for care for your spouse who is not physically or mentally able to care for himself or herself while you work.
Child care only while you perform unpaid volunteer work.
All of the following statements with respect to qualifications to claim the Child and Dependent Care Credit are true EXCEPT
The care must be for one or more qualifying persons.
You must keep up a home that you live in with the qualifying persons.
You must have earned income.
If you make payments to your sister, she can be your dependent.
Each of the following can be qualifying persons for purposes of claiming the Child and Dependent Care Credit EXCEPT
A spouse who was physically or mentally unable to care for himself or herself.
A dependent, age 14, for whom the dependency exemption is claimed.
A dependent who is physically unable to care for himself or herself and for whom the dependency exemption would have been claimed if the dependent had earned less than $4,400 in gross income.
A 10-year-old child who is your dependent and for whom you can claim a dependency exemption.
Mr. and Mrs. Pine both work full time. They have three children ages 18, 6, and 3. For purposes of claiming the Child and Dependent Care Credit, which of the following expenses qualify?
Payments to the taxpayer’s 18-year-old daughter to care for her 3-year-old sister.
Payments to the taxpayer’s 20-year-old niece who lives with them and can be claimed as their dependent.
Payments to the taxpayer’s mother who lives with them but does not qualify as their dependent.
Payments to a private school for their 6-year-old to attend first grade.
Carmella is divorced and has two children, ages 3 and 9. For 2022, her adjusted gross income is $30,000, all of which is earned income. Carmella’s younger child stays at her employer’s on-site child care center while she works. The benefits from this child care center qualify to be excluded from her income. Carmella’s employer reports the value of this service as $3,000 for the year. This amount is shown in box 10 of Carmella’s Form W-2, but is not included in taxable wages in box 1. A neighbor cares for Carmella’s older child after school, on holidays, and during the summer. Carmella pays her neighbor $3,000 for this care. What is Carmella’s Child and Dependent Care Credit for 2022?
$600
$810
$1,050
$1,620
Mr. and Mrs. Wilson’s 5-year-old son, Dennis, goes to kindergarten in the morning. In the afternoon, he attends a day care center. The cost of sending Dennis to the day care center for 2022 was $3,400. Mr. Wilson’s earned income was $40,000, and Mrs. Wilson’s earned income was $2,100. Based on the above information, the amount of the Wilson’s work-related expenses used to figure the Child and Dependent Care Credit for 2022 cannot be more than
$2,100
$2,400
$3,400
$4,800
Each of the following can be qualifying persons for purposes of claiming the Child and Dependent Care Credit EXCEPT
A spouse who was physically or mentally unable to care for himself or herself.
A dependent, age 5, who is sent to an overnight camp while the parent is out of town on business.
A dependent who is physically handicapped.
A 10-year-old grandson who is your dependent and for whom a dependency exemption is not claimed.
Which of the following is true regarding the premium tax credit (PTC)?
Married individuals are required to file a joint return to qualify for the credit.
For at least 6 months during the year the individual was enrolled in a qualified health plan.
Form 1095-A, Health Insurance Marketplace Statement, is not needed to complete Form 8962, Premium Tax Credit (PTC).
No PTC is allowed for any period during which an individual is not lawfully present in the United States.
Zach and Myra have four children ranging in age from 2 to 10. Zach has wages of $80,000, and Myra has wages of $40,000. Two of the children went to Child Nursery School, Inc., at a total cost of $18,000. The two older children attended a qualified after-school program that costs $2,500. What amount of childcare expenses can be used to determine the Child and Dependent Care Credit on their 2022 return?
$10,500
$3,000
$4,800
$6,000
With respect to the Child and Dependent Care Credit, all of the following statements apply EXCEPT
You must pay child or dependent care expenses so that you (and your spouse) can work or look for work.
The payments must be to someone you (or your spouse) cannot claim as a dependent.
The child cannot have in excess of $500 of his or her own unearned income.
The maximum amount of employment-related expenses to which the credit may be applied is $3,000 less excludable employer dependent-related expenses ($6,000 if two or more persons were cared for).
Marc and Mandy’s dependent children, ages 3 and 4, attend day care where the total expense for 2022 was $5,200, $2,600 per child. Marc earned $20,000 and Mandy earned $15,000, and the two are a married couple. How much Child and Dependent Care Credit can they claim for 2022?
Adjusted Gross Income Percentage for Credit
$15,000 35
$20,000 32
$35,000 25
$1,300
$5,200
$1,500
$1,820
Which of the following is true regarding the premium tax credit (PTC)?
Married individuals are required to file a joint return to qualify for the credit.
For at least 6 months during the year the individual was enrolled in a qualified health plan.
Form 1095-A, Health Insurance Marketplace Statement, is not needed to complete Form 8962, Premium Tax Credit (PTC).
No PTC is allowed for any period during which an individual is not lawfully present in the United States.
Which of the following statements is NOT a general requirement to qualify for the Child and Dependent Care Credit?
You must maintain a household that includes a qualifying individual.
Your expenditures must be necessary to enable you to be gainfully employed.
Your payments for services must not be to dependent relatives.
You must be divorced or legally separated when you incur the expense.
All of the following qualify as work-related expenses for computing the Child and Dependent Care Credit EXCEPT
The parent-employer’s portion of Social Security tax paid on wages for a person to take care of dependent children while the parents work.
Payments to a nursery school for the care of dependent children while the parents work.
The cost of meals for a housekeeper who provides necessary care for a dependent child while the parents work.
Payments to a housekeeper who provides dependent care while the parent is off from work because of illness.
Bethany is single and has adjusted gross income of $40,000. Bethany works full-time and keeps up a home for herself and her dependent father, who is not able to care for himself. She pays a housekeeper $1,000 per month to care for and provide meals to her father. What is the maximum amount of annual housekeeper expenses that Bethany can use to compute her Child and Dependent Care Credit?
$1,320
$3,000
$12,000
$6,000
Mr. and Mrs. Donegan are filing a joint return for the current year. Mr. Donegan was employed the full year. Mrs. Donegan was a full-time student for 9 months and was not employed at any time during the year. For the 9 months that Mrs. Donegan was a student, she paid $250 per month to a child care center to care for their 4-year-old daughter. For purposes of the Child and Dependent Care Credit, Mrs. Donegan is considered to have current-year earned income of
$2,250
$3,000
$3,600
$6,000
Miss Dunn, a single parent who keeps up a home for herself and her two preschool children, paid work-related expenses of $5,200 for child care at a nursery school. Her adjusted gross income is $20,000, the sole source of which is wages. What amount can she claim as a Child and Dependent Care Credit?
$1,612
$1,664
$1,716
$1,920
None of the following are qualifying persons for purposes of claiming the Child and Dependent Care Credit EXCEPT
A spouse who is physically handicapped but does not need constant supervision.
A dependent, age 15, for whom the dependency exemption is claimed.
A dependent who was physically unable to care for himself or herself for whom the dependency exemption would have been claimed if the dependent had earned less than $4,400 in gross income.
A cousin who lived in the home for the first half of the year.
Jerry and Ann Moore are married and keep up a home for their two preschool children, ages 2 and 4. They claim their children as dependents and file a joint return using Form 1040. Their adjusted gross income (AGI) is $27,500. Jerry earned $12,500, and Ann earned $15,000. During the year, they pay work-related expenses of $3,000 for child care for their son, Daniel, at a neighbor’s home and $2,200 for child care for their daughter, Amy, at Pine Street Nursery School. How much of their child care payments are eligible for the Child and Dependent Care Credit on their return?
$0
$3,000
$6,000
$5,200
Which one of the following is NOT a qualifying person for purposes of the Child and Dependent Care Credit?
Spouse who was physically not able to care for himself or herself.
Dependent who was age 12 when the care was provided and for whom the taxpayer can claim the dependent.
Child who was under age 13 when the care was provided, but who lived with the taxpayer’s former spouse all year
Dependent who was mentally not able to care for himself or herself and for whom the taxpayer can claim the dependent.
To qualify for the American Opportunity Tax Credit (AOTC), the student must be enrolled
At least part-time.
At least half-time for one academic period for the year.
At least full-time for one academic period for the year.
There is no enrollment requirement.
Cathy, a single mother, has modified AGI of $86,000. In 2022, her daughter began work on her bachelor’s degree. Cathy pays $6,000 in qualified tuition for her daughter’s first semester. What is the amount of American Opportunity Tax Credit (AOTC) Cathy is allowed on her return?
$2,500
$1,500
$1,000
$0
Mr. and Mrs. Baker, who file a joint tax return, have an adjusted gross income of $75,000 for 2022. Their son, Tony, began his fifth year of college on July 15, 2022. The Bakers’ expenses incurred in 2022 were $6,000 for tuition. What is the amount of Lifetime Learning Credit the Bakers may claim in 2022?
$1,200
$2,000
$10,000
$6,000
Karen, filing as head of household, and her son James and daughter Julia are all in graduate school. James and Julia are not dependents on Karen’s return, although they live with her and she pays all of their education expenses. Karen paid $6,000 in qualified tuition expenses for herself in January 2022 for the term starting in January 2022. She also paid $2,500 in qualified tuition expenses for James and another $2,500 for Julia in July 2022 for the term starting in July 2022. Her adjusted gross income is $100,000. Which of the following about the American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit is true for tax year 2022?
Karen may claim no AOTC and $2,000 Lifetime Learning Credit.
Karen may claim $5,000 AOTC and $1,000 Lifetime Learning Credit.
Karen may claim neither the AOTC nor the Lifetime Learning Credit.
Karen may claim no AOTC and $1,000 Lifetime Learning Credit.
In 2022, Jonathan Smith paid his educational expenses at a community college where he completed his freshman year and began his sophomore year. His father, John Smith, provides more than half of the support for Jonathan and claims an exemption for him on his tax return. Which of the following is true?
Jonathan is eligible to take the AOTC on his 2022 tax return.
John is eligible to take the AOTC on his 2022 tax return.
Jonathan and John may split the AOTC between their 2022 tax returns.
Neither may take the AOTC.
Which of the following are eligible expenses for the AOTC?
I. Tuition
II. Books
III. Fees required for enrollment
I only.
I and III only.
II and III only.
I, II, and III.
Which of the following statements is NOT true regarding tax benefits for education?
The AOTC may be claimed for tuition expenses incurred in the first 4 years of post-secondary education.
The dollar limitations for the AOTC are calculated on a per-student basis.
The Lifetime Learning Credit is allowed for tuition paid for graduate program studies.
Room and board are qualifying expenses for the AOTC.
What is the maximum amount of qualified expenses allowed per year for the Lifetime Learning Credit?
$1,000
$5,000
$10,000
$15,000
A head of household taxpayer claiming an above-the-line IRA deduction of $6,000 with AGI of $30,000 may claim a maximum Retirement Savings Contribution Credit of
$0
$1,000
$2,000
$6,000
For purposes of claiming the Child Tax Credit, which of the following is NOT true for a qualifying child?
Child must be under age 15 at the end of the year.
Child must be a citizen or resident of the United States.
Child must be claimed as your dependent.
Child may be an eligible foster child.
Hollie filed as head of household and would like to take the Child Tax Credit for Amanda in 2022. Which of the following statements is false regarding the Child Tax Credit?
Amanda must be under 18 at the end of the tax year.
Hollie must claim Amanda as a dependent.
The Child Tax Credit is nonrefundable.
If Hollie’s adjusted gross income is above $200,000, her credit will be reduced or eliminated.
Which of the following statements is NOT true regarding the Child Tax Credit for 2022?
A qualifying child must be under age 13 at the end of 2022.
The Child Tax Credit is nonrefundable.
The Child Tax Credit may be limited depending on modified adjusted gross income.
The maximum Child Tax Credit for each qualifying child is $2,000 in 2022.
Mary files as head of household and has three dependent children, ages 15, 16, and 17. Mary and the children are U.S. citizens and all have Social Security numbers. Her only income is a salary of $205,500. Her tax is $46,048. How much Child Tax Credit and Credit for Other Dependents is she allowed in 2022?
$6,000
$4,500
$4,200
$0
Which of the following is NOT a requirement for a qualifying child for purposes of the Child Tax Credit?
The child is claimed as your dependent.
The child was under age 19 at the end of 2022 or under age 24 at the end of 2022 and was a student.
The child is your son, daughter, adopted child, grandchild, stepchild, foster child, sibling, or descendant of siblings.
The child is a citizen or resident of the United States.
Sally and Joe Johnson have one child who is a U.S. citizen under the age of 17. Their earned income for all of 2022 was $80,000. What is the amount of Child Tax Credit that they may take in 2022 if they file a joint return?
$2,500
$1,400
$1,000
$2,000
Jerry and Lori, who are married and file a joint return, have two qualifying children and earned income of $32,900 in 2022. What is the amount of their Child Tax Credit and Additional Child Tax Credit combined for 2022 (The applicable tax rate is 10%.)
$0
$2,000
$700
$3,700
Which of the following is used to calculate the Additional Child Tax Credit?
Instructions for Form 1040.
Form 2441 (Child and Dependent Care Expenses).
Form 1116 (Foreign Tax Credit).
Form 8812 (Credits for Qualifying Children and Other Dependents).
During the current year, Mr. Hughes celebrated his 55th birthday. In order to qualify for the Credit for the Elderly or the Disabled, Mr. Hughes must have
Retired on permanent and total disability.
Received nontaxable disability benefits.
Reached mandatory retirement age.
Worked at least part time for the minimum wage in 2 of the preceding 3 years.
Ms. Gower is 58 years old, is single, and files Form 1040. In 2020, she retired on permanent and total disability.
Ms. Gower received the following income for 2022:
Nontaxable Social Security $2,000
Interest (taxable) 100
Taxable disability pension 8,400
What is Ms. Gower’s Credit for the Elderly or the Disabled in 2022 before any income tax limitations?
$0
$375
$675
$750
Dan and Marge filed a joint return for 2022. Dan was 67 years old, and Marge’s 65th birthday was January 1, 2023; neither of them are disabled. During 2022, they received total nontaxable income of $3,800 from Social Security. Their adjusted gross income was $16,000. How much can they claim as a credit for the elderly before any income tax limitation?
$0
$105
$120
$375
All of the following statements regarding the “Credit for the Elderly or the Disabled” are true EXCEPT
The amount of the credit is based on age and filing status.
Married persons living together must file a joint return to be eligible for the credit.
A person under 65 must be retired due to being permanently and totally disabled to be eligible for the credit.
The amount of the credit that is not absorbed can be carried back 3 years or carried forward 5 years.
During the year, Mr. Yogi celebrated his 63rd birthday. In order to qualify for the Credit for the Elderly or the Disabled, Mr. Yogi must have
Retired on permanent and total disability.
Received no other income than taxable pension distributions and/or Social Security benefits.
Reached mandatory retirement age.
Been temporarily disabled for at least 3 out of the last 10 years.
Which of the following is an eligible child for purposes of the Adoption Credit?
I. An infant child
II. A 15-year-old child
III. A 19-year-old mentally handicapped child
I only.
II only.
I and II only.
I, II, and III.
Which of the following are expenses that are NOT eligible for the Adoption Credit?
Adoption fees.
Court costs.
Attorney fees.
Surrogate parenting arrangement costs.
Mr. and Mrs. Hall adopted a special-needs child in the current year. During the year, the Halls’ qualified expenses were $15,000, and their adjusted gross income was $240,000. What is the amount of the Halls’ Adoption Credit for the current year?
$8,714
$14,890
$6,176
$15,000
Mr. and Mrs. Greg adopted a child in the current year. During the year, the Gregs’ qualified adoption expenses were $23,000, and they had an AGI of $270,000. What is the Gregs’ Adoption Credit for 2022?
$0
$7,445
$14,890
$23,000
Which of the following is an expense that is eligible for the Adoption Credit?
Expenses incurred for attorneys during the course of the adoption.
Costs associated with a surrogate parenting arrangement.
Expenses incurred in violation of state or federal law.
Expenses incurred in connection with the adoption of a child of the taxpayer’s spouse.
What are the limits for the rate specified by the mortgage credit certificates (MCCs)?
Not less than 10% and not greater than 30%.
Not less than 10% and not greater than 40%.
Not less than 10% and not greater than 50%.
Not less than 10% and not greater than 60%.
To compute the Minimum Tax Credit (MTC), the taxpayer should
Recompute the most recent year’s alternative minimum tax and subtract the carryover MTC.
Recompute the most recent year’s alternative minimum tax with the adjustment for the tax amount, and subtract the carryover MTC.
Recompute the most recent year’s alternative minimum tax without adjustment for certain exclusion items, and add the carryover MTC.
Recompute the most recent year’s alternative minimum tax with adjustment for certain exclusion items, and add the carryover MTC.
Michael had to pay $4,000 alternative minimum tax last year. This year, his regular income tax is $60,000 and tentative minimum tax on his income is $57,000, so he will pay only regular income tax. How much credit for prior year minimum tax can he take this year?
$0
$4,000
$2,000
$3,000
Which of the following is NOT a test to determine if a child is a qualifying child for the Earned Income Credit (EIC)?
Relationship.
Age.
Residency.
Support.
Which of the following conditions would NOT prevent an individual from qualifying for the Earned Income Credit for the year 2022?
Married filing separately filing status.
Being a qualifying child of another person.
Being age 25.
Investment income of more than $10,300.
For purposes of claiming the Earned Income Credit, a qualifying child could be any of the following EXCEPT
Your 20-year-old unemployed child.
Your child who is less than 19 years old.
Your 22-year-old grandson who is a full-time student.
Your 40-year-old permanently disabled stepson.
For the current year, for purposes of the Earned Income Credit, which of the following amounts qualifies as earned income?
Earnings from self-employment.
Excluded combat-zone pay.
Unemployment compensation.
Value of meals or lodging provided by an employer for the convenience of the employer.
Which of the following items is considered earned income for the Earned Income Credit?
Welfare benefits.
Earnings from self-employment.
Social Security benefits.
Veterans’ benefits.
All of the following statements with respect to qualifications for the Earned Income Credit are true EXCEPT
An individual must not have disqualified income in excess of $10,300.
The taxpayer must be eligible to work in the United States.
An individual must have a qualifying child living with him or her for more than 6 months.
An individual must have earned income during the year.
Which of the following taxpayers may claim the Earned Income Credit for 2022?
Ginger, 50 years of age, who has a qualifying child (QC) for whom she provides sole support. She received $15,000 in Social Security benefits and $500 in interest income in 2022.
Cinnamon, 42 years old, who was divorced the entire year. She had investment income of $7,000 and had W-2 wages of $9,000.
Woody, age 51, who is single and lived in a homeless shelter during 2022 and received retirement benefits of $12,000.
Cherrie, age 35, who is single and has one qualifying child. She had $40,000 in wages, and her adjusted gross income is $45,000.
You and your son lived with your mother all year. You are 25 years old. Your only income was $9,300 from a part-time job. Your mother’s adjusted gross income was $15,000. All her income was from her job. Which of the following is true?
Your son does not meet the conditions to be a qualifying child for purposes of the Earned Income Credit for both you and your mother.
You can claim the Earned Income Credit.
You are a qualifying child for your mother.
The person with the higher AGI must claim the credit.
All of the following individuals, who meet the income and residency requirements, qualify for the Earned Income Credit EXCEPT
A 19-year-old head of household with a qualifying child.
A 45-year-old single individual.
A 22-year-old married individual whose spouse is 18 years old.
A 60-year-old married individual.
Rose, a single parent, has two children ages 10 and 13. She earned $28,000 in 2022, and her investments earned $2,000 interest income. Taxable income on her 2022 return was $22,000. After applying her withholding, Rose’s tax due was $800. Using the following Earned Income Credit information, determine Rose’s balance due/overpayment for 2022:
• Credit figured using $30,000 adjusted gross income = $4,085
• Credit figured using $28,000 earned income = $4,507
• Credit figured using $22,000 taxable income = $5,770
$3,285 overpayment (refund).
$4,970 overpayment (refund).
$3,707 overpayment (refund).
$0, carryover $3,285 credit to next year.
All of the following statements regarding qualification for the Earned Income Credit are true EXCEPT
The tax return claiming the credit must cover a full 12 months (unless a short period return is required due to the taxpayer’s death).
The taxpayer’s principal residence must be in the United States for more than one-half of the taxable year.
The taxpayer’s filing status must be either married filing a joint return or head of household.
The taxpayer must have received earned income during the year.
Which of the following is qualified income for purposes of the Earned Income Credit?
Net capital gain income.
Net rent and royalty income.
Income earned from part-time employment.
Tax-exempt interest income.
Mike, age 30, and his daughter lived with Mike’s mother during the year. Mike’s earned income and adjusted gross income for the year was $5,000. The mother’s adjusted gross income for the year was $45,000. Assuming that the daughter is a qualifying child for both Mike and his mother, which of the following statements is true with regard to the Earned Income Credit?
Since the daughter is a qualifying child for both Mike and his mother, they both can claim the credit providing they allocate the earned income.
Mike can claim the credit since he is the parent, and his mother’s adjusted gross income exceeds the limit for the year.
Mike’s mother can claim the credit because her adjusted gross income is more than Mike’s.
Neither can claim the credit.
Charles’s parents are divorced. He lives with each parent 6 months out of the year. Last year, his father had an adjusted gross income of $80,000, and his mother had an adjusted gross income of $70,000. Which parent has the right to claim Charles as a dependent?
Mother.
Father.
Both.
Neither.
Which of the following statements is a requirement for eligibility of the Premium Tax Credit (PTC)?
Insurance purchased through an employer.
Eligible for coverage through an employer.
Filing status other than MFS.
Claimed as a dependent of another taxpayer.
Two taxpayers married on November 30. That same year, the husband enrolled in an accredited college to further his career and subsequently received a Form 1098-T, Tuition Statement. The wife was employed with an income of $45,000 and paid for the husband’s education expenses. The taxpayers did not receive any other income for the year. Based on their circumstances, what is the correct method to report the education credit?
Taxpayers must file a joint return to claim an education credit.
Based on the wife’s AGI, they do not qualify to claim an education credit.
Husband is ineligible to claim an education credit because the wife paid his education expenses.
Wife should report nonqualified education expenses on Form 8863, Education Credits (American Opportunity Tax and Lifetime Learning Credits).
Which of the following statements is correct regarding Form 1095-A, Health Insurance Marketplace Statement?
Taxpayers do not need Form 1095-A to complete Form 8962, Premium Tax Credit, to reconcile advance payments of the Premium Tax Credit or claim the Premium Tax Credit on their tax return.
Taxpayers will receive Form 1095-A to complete Form 8962, Premium Tax Credit, if they have been covered by an employer insurance plan for the entire year.
Taxpayers will use Form 1095-A to complete Form 8962, Premium Tax Credit, to reconcile advance payments of the Premium Tax Credit or claim the Premium Tax Credit on their tax return.
Taxpayers will attach a Form 1095-A to their tax return to reconcile advance payments of the Premium Tax Credit or claim the Premium Tax Credit on their return.
Which of the following situations will disqualify a single individual from claiming the Premium Tax Credit?
Marriage to an individual enrolled in a qualified health plan.
Household income that is 390% of the federal poverty line.
Inheritance of $1,100,000 non-income producing vacation home.
Being claimed as a dependent on the individual’s parent’s joint tax return.
The taxpayer has a child under the age of 24 who is a full-time student in their second year of college. The student will be claimed as a dependent on the taxpayer’s return.
The student’s educational expenses included $8,000 for tuition and $4,000 for room and board.
The student received a $5,000 scholarship for tuition use only, as well as an additional $2,500 scholarship to pay any of the student’s college expenses. The taxpayer paid the remaining $4,500.
Which of the following statements is correct, based on the information above?
The student can claim the American Opportunity Tax Credit (AOTC) on the student’s return for tuition expenses of $3,000 and should report the additional $2,500 scholarship as income.
The taxpayer can claim the American Opportunity Tax Credit on the taxpayer’s return for tuition expenses of $3,000, and the student should report the additional $2,500 scholarship as income.
The taxpayer can claim the American Opportunity Tax Credit on the taxpayer’s return for tuition expenses of $3,000, and neither the taxpayer nor the student should report any of the additional $2,500 scholarship as income.
The taxpayer can claim the American Opportunity Tax Credit on the taxpayer’s return for tuition expenses of $3,000 and should report the additional $2,500 scholarship as income.
Juliet Corporation has U.S. taxable income of $800,000, of which 25% is from a foreign division. Juliet paid $45,000 of foreign income taxes on the income of the foreign division. Assuming Juliet’s U.S. income tax for the current year before credits is $168,000, its maximum Foreign Tax Credit for the current year is
$123,000
$40,000
$42,000
$3,000
Smithco, Inc., a domestic corporation, was paid $20,000 of the total of $100,000 in dividends paid by a foreign corporation this year. Smithco owned 20% of the foreign corporation’s stock. The foreign corporation paid $35,000 in foreign taxes and had accumulated profits of $120,000 after payment of its foreign taxes for the last 11 years. Smithco also had $1,000 in taxes withheld by the foreign country on the dividend. Smithco has a Foreign Tax Credit before limitation of
$1,000
$5,833
$6,833
$8,000
How may taxes paid by an individual to a foreign country be treated?
As a miscellaneous itemized deduction.
As a credit against federal income taxes due.
As an adjustment to gross income.
As nondeductible.
During the current year, Bold, Inc., had worldwide taxable income of $2,100,000 and a tentative U.S. income tax of $270,000. Bold’s taxable income from business operations in Colombia was $700,000, and foreign income taxes imposed were $140,000 stated in U.S. dollars. How much should Bold claim as a credit for foreign income taxes on its U.S. income tax return in the current year?
$0
$140,000
$90,000
$270,000
Trapezoid, Inc., had worldwide taxable income in the current year of $2.5 million. Seventy-five percent of this was earned within the United States, with the remainder being earned in Laos. Trapezoid paid $10,000 in foreign income taxes on $200,000 of nonbusiness-related interest earned in Laos. Trapezoid also paid $150,000 in taxes to Laos on foreign source business income of $425,000. Trapezoid’s tentative U.S. income tax was $525,000. What is Trapezoid’s Foreign Tax Credit in the current year?
$89,250
$99,250
$160,000
$131,250
Judy purchased her first home in January of the current year. She obtained a new mortgage and paid $6,000 of interest during the current year. Her state has elected to issue mortgage credit certificates in lieu of mortgage subsidy bonds. If Judy receives a mortgage credit certificate specifying a 20% credit rate, how much are her income tax credit and interest deduction?
Credit Deduction
$1,200 $0
Credit Deduction
$1,200 $4,800
Credit Deduction
$1,200 $6,000
Credit Deduction
$2,000 $4,000
In the current year, Sal purchased a new home by obtaining a mortgage. He received a credit certificate from his bank specifying a 25% interest rate. His total mortgage interest paid for the year was $20,000. Sal’s tax liability for the year is $7,000. How much income tax credit can Sal get on his home mortgage interest?
$7,000
$5,000
$2,000
$0
Which of the following is NOT a requirement for a student to be eligible for the American Opportunity Tax Credit?
Full-time enrollment.
One-half time enrollment.
Student must be enrolled in a degree program.
Married taxpayers must file a joint return to be eligible.
Joe and Mary Day’s daughter Julie is a first-year student in college during 2022. Joe and Mary, who filed jointly, had an adjusted gross income of $128,100, and Julie’s eligible expenses were $8,000. What is the amount of the American Opportunity Tax Credit that the Days may use in 2022?
$0
$2,000
$2,500
$8,000
Mr. and Mrs. X had adjusted gross income of $172,000 in 2022. Their daughter’s eligible education expenses for her first year of college were $4,500 in 2022. What is the amount of American Opportunity Tax Credit that Mr. and Mrs. X may use in 2022?
$0
$1,000
$1,500
$2,500
Taylor and Graham Wood’s son Corey is a first-year college student in 2022. Taylor and Graham have an adjusted gross income of $120,000, and Corey has eligible education expenses of $7,000 in 2022. What amount can the Woods claim for the American Opportunity Tax Credit in 2022?
$7,000
$5,000
$2,500
$2,000
Which of the following are expenses that are NOT eligible for the Adoption Credit?
Adoption fees.
Court costs.
Attorney fees.
Child care expenses.
Mr. and Mrs. Clegg adopted a child in the current year. During the year, the Cleggs’ qualified adoption expenses were $15,000, and they had an AGI of $70,000. What is the Cleggs’ Adoption Credit for 2022?
$0
$14,440
$14,890
$15,000
Mr. and Mrs. Ball adopted a child in the current year. During the year, the Balls’ qualified adoption expenses were $15,000, and their adjusted gross income was $228,410. What is the amount of the Balls’ Adoption Credit for the current year?
$13,029
$15,000
$14,890
$16,751
Fred and Tonya adopted a special-needs child in 2022. Their AGI was $200,000, and they incurred qualified adoption expenses of $15,800. What is their allowable Adoption Credit for the current year?
$14,890
$15,800
$14,440
$7,900
Tom, age 45, contributed $1,000 to his 401(k) in the current year. Additionally, Tom rolled over $25,000 from a separate 401(k). Tom had AGI of $24,000. If Tom files as a single taxpayer, what amount of Saver’s credit may he claim for the year?
$100
$2,400
$2,500
$2,600
Mark and Rita, both age 50, are married and file a joint tax return in the current year. They have a combined AGI of $50,000 and each contributed $1,500 to their IRAs. Assuming all requirements are met, what amount of the Retirement Savings Contributions Credit may they claim in the current year?
$0
$300
$1,500
$3,000
For 2022, Mike and Denise, calendar-year taxpayers, had gross income comprised of the following:
Wages received as a farm employee $26,000
Gross income from Schedule F
dairy operations 40,000
Distributable share of an S corporation’s
gross income from farming 12,000
Long-term capital gains from stock sales 18,000
Short-term capital losses from stock sales (21,000)
They have made no estimated tax payments as of December 31, 2022, and the withholding from wages is not sufficient to relieve them from the estimated tax penalty. Which of the following statements is true if they make an estimated tax payment by January 17, 2023?
They will avoid the estimated tax penalty since they are qualified farmers.
They will avoid the estimated tax penalty since all of their earned income is from farming activities.
They will not avoid the estimated tax penalty since their farm income does not comprise two-thirds of their gross income.
They can avoid the estimated tax penalty only by filing their return by March 1, 2023, and paying all the tax due.
All of the following individuals file their income tax returns as single. Which one is required to make estimated tax payments for 2022?
Ms. Kirkland, who had no tax liability for 2021, expects to owe $2,500 self-employment tax for 2022 (she has no withholding tax or credits).
Mr. Brady, who had a $2,000 tax liability for 2021, expects a $2,100 tax liability for 2022 and withholding of $1,900.
Ms. Evans, who had no tax liability for 2021, expects a tax liability of $4,900 for 2022, with $3,500 withholding.
Mr. Jones, who had a 2021 tax liability of $9,500, expects a tax liability of $12,400 for 2022, with $8,500 withholding.
Violet made no estimated tax payments for 2022 because she thought she had enough tax withheld from her wages. In January 2023, she realized that her withholding was $2,000 less than the amount needed to avoid a penalty for the underpayment of estimated tax so she made an estimated tax payment of $2,500 on January 10. Violet filed her 2022 return on March 1, 2023, showing a refund due her of $100. Which of the following statements is NOT true regarding the estimated tax penalty?
Violet will not owe a penalty for the quarter ending December 31, 2022, because she made sufficient payment before January 17, 2023.
Violet will not owe a penalty for any quarter because her total payments exceed her tax liability.
Violet could owe a penalty for one or all of the first three quarters even though she is due a refund for the year.
If Violet owes a penalty for any quarter, the underpayment will be computed from the date the amount was due to the date the payment is made.
An employee who has had Social Security tax withheld in an amount greater than the maximum for a particular year may claim
Such excess as either a credit or an itemized deduction, at the election of the employee, if that excess resulted from correct withholding by two or more employers.
Reimbursement of such excess from his or her employers if that excess resulted from correct withholding by two or more employers.
The excess as a credit against income tax, if that excess resulted from correct withholding by two or more employers.
The excess as a credit against income tax, if that excess was withheld by one employer.
Ms. B filed her Year 1 Form 1040 on April 15, Year 2, but did not pay her tax liability of $3,000. On June 15, Year 3, she paid the tax in full. In Year 4, Ms. B discovered additional deductions for Year 1 that will result in a refund of $1,000. To receive her refund, Ms. B must file an amended income tax return by (assuming no relevant days are Saturdays, Sundays, or holidays)
April 15, Year 5.
June 15, Year 5.
April 15, Year 6.
June 15, Year 6.
Marge Godfrey sold her investment property March 30, 2022, at a gain of $50,000. Marge expects to owe $10,000 in additional income taxes on this sale. She had a tax liability of $900 for 2021 and will have no withholding for 2022. Marge’s first estimated tax payment is due on what date?
April 30, 2022.
April 15, 2022.
January 31, 2023.
June 15, 2022.
Mr. Bagley, a self-employed musician, timely filed his Year 1 income tax return, which showed an AGI of $180,000 and total tax of $45,000. He expects his Year 2 total tax to be $70,000. What is his required payment through withholding and estimated tax for Year 2?
$63,000
$49,500
$45,000
$0
Dr. Steve and Joyce are married and have total income of $197,000 and itemized deductions of $28,200, leaving estimated taxable income of $168,800. Assume that for 2022 the tax on $168,800 would be $35,403. They have withholding taxes of $30,000 during the year. In 2021, they paid a total of $42,000 in taxes for the year and had adjusted gross income of $185,000. For 2022, they would need to make
No estimated tax payments since they have withholding taxes.
Estimated payments of $1,863.
Estimated payments of $5,403.
Estimated payments of $12,000.
Mr. Berry, a self-employed musician, timely filed his 2021 income tax return, which showed an AGI of $220,000 and total tax of $65,000. He expects his 2022 total tax to be $82,000. What is his required payment through withholding and estimated tax for 2022?
$82,000
$71,500
$65,000
$73,800
For 2022, Robert and Martha, calendar-year taxpayers, received all of their gross income of $75,000 from their dairy farm. As of December 31, 2022, they had not made any estimated tax payments for 2022. Which of the following will allow them to avoid the estimated tax penalty (ignoring Saturdays, Sundays, or holidays)?
Make one estimated tax payment by January 15, 2023.
File their 2022 federal income tax return by March 15, 2023.
File their 2022 federal income tax return by April 15, 2023, pay all of the tax, and attach a statement that they are qualified farmers.
File their 2022 federal income tax return by March 15, 2023, and pay all the tax due.
Sue must make estimated tax payments of $4,000 for the tax year. She makes the following payments:
• 1st payment - credit of $1,000 from her previous year refund
• 2nd payment - $500 on April 20th
• 3rd payment - $500 on May 31st
• 4th payment - $1,000 on August 15th
• 5th payment - $500 on October 15th
• 6th payment - $500 on December 30th
Which of the following is true?
She has not made timely payments because her 2nd and 3rd payments were not made by April 15th.
She has not made timely payments because her 4th payment was not made by June 15th.
She has made timely estimated payments.
She has not made any timely payments because none of the payments were made by the required IRS schedule.
A taxpayer does NOT have to pay estimated taxes for the current year if
The taxpayer’s tax liability for the previous year was less than $1,000.
The taxpayer’s withholding covers 90% of the tax liability for the previous year.
The taxpayer’s Earned Income Credit will exceed his or her tax liability for the current year.
All of the answers are correct.
A taxpayer had adjusted gross income of $98,000 and a total tax liability in 2021 of $20,000. In 2022, the taxpayer has a tax liability of $25,000. The taxpayer’s withholding was increased to $23,500. He will file his tax return for 2022 on April 10, 2023. To avoid the underpayment of estimated tax penalty, the taxpayer must (ignoring Saturdays, Sundays, or holidays)
Pay the additional $1,500 due by April 15, 2023.
Pay an additional $1,500 by January 15, 2023.
File an annualized estimated tax computation.
Do nothing, as he has satisfied the minimum tax payment requirements.
Which statement pertaining to estimated tax payments is NOT correct?
An individual, whose only income is from self-employment, will have to pay estimated payments.
If insufficient tax is paid through withholding, estimated payments may be necessary.
Estimated tax payments are required when the withholding taxes are greater than the overall tax liability.
Estimated tax is used to pay not only income tax, but self-employment tax and alternative minimum tax as well.
All of the following individuals file their income tax returns as single. Which one is required to make estimated tax payments for Year 2?
Ms. Streams, who had no tax liability for Year 1, expects to owe $1,200 self-employment tax for Year 2 (she has no withholding tax or credits).
Mr. Rush, who had a $1,000 tax liability for Year 1, expects a $1,100 tax liability for Year 2 and withholding of $900.
Ms. Givonni, who had a $4,000 tax liability for Year 1, expects a tax liability of $4,900 for Year 2 with $3,900 withholding.
Mr. Charles, who had a Year 1 tax liability of $10,000, expects a tax liability of $19,500 for Year 2, with $10,500 withholding.
For estimated tax purposes, the calendar year is divided into four payment periods. Which of the following payment periods is incorrect?
January 1 through March 31.
April 1 through June 30.
June 1 through August 31.
September 1 through December 31.
For Year 2, all of the following situations qualify as exceptions to the penalty for underpayment of estimated tax EXCEPT
Total tax shown on the return minus withholdings is less than $1,000.
Estimated tax payments were 90% of that shown on the Year 1 return, and last year’s AGI was $160,000.
Estimated payments were 100% of that shown on the Year 1 return, and last year’s AGI was $120,000.
The taxes shown as owed on the return are no more than 10% of the total Year 2 tax, all required estimated tax payments were made on time, and Year 1 AGI was $100,000.
Charles is a self-employed attorney and files a joint return. He reported AGI of $80,000 and taxable income of $60,000 in Year 1, and he paid a tax liability of $12,000 after credits. In Year 2, he expects his AGI to increase about 25%. In setting up his estimated tax payments so as to avoid any penalty for underpayment of his Year 2 liability, Charles should
Pay quarterly installments of 25% of $12,000.
Make only one estimated payment late in Year 2 when he can more clearly estimate his Year 2 income.
Pay at least 25% more tax each quarter than he paid in Year 1.
Pay quarterly installments of 90% of 25% of $12,000.
Krete, an unmarried taxpayer with income exclusively from wages, filed her initial income tax return for the 2022 calendar year. By December 31, 2022, Krete’s employer had withheld $16,000 in federal income taxes, and Krete had made no estimated tax payments. On April 15, 2023, Krete timely filed an extension request to file her individual tax return and paid $300 of additional taxes. Krete’s 2022income tax liability was $16,500 when she timely filed her return on April 30, 2023, and paid the remaining income tax liability balance. What amount is subject to the penalty for the underpayment of estimated taxes?
$0
$200
$500
$16,500
Ms. W, who is single, determined that her total tax liability for Year 2 would be $10,000. W is required to make estimated tax payments if
Her Year 1 tax liability was $12,000 and her Year 2 income tax withholding will be $9,750.
Her Year 1 tax liability was $12,000 and her Year 2 income tax withholding will be $9,000.
Her Year 1 tax liability was $5,000 and her Year 2 income tax withholding will be $6,000.
Her Year 1 tax liability was $9,000 and her Year 2 income tax withholding will be $8,500.
Chris Baker’s adjusted gross income on her 2021 tax return was $160,000, which covered a 12-month period. For the 2022 tax year, Baker may avoid the penalty for the underpayment of estimated tax if the timely estimated tax payments equal the required annual amount of
I. 90% of the tax on the return for the current year, paid in four equal installments
II. 110% of prior year’s tax liability, paid in four equal installments
I only.
II only.
Either I or II.
Neither I nor II.
Sam Johnson, a calendar-year taxpayer, applied for and received an extension for filing his Year 1 tax return. Mr. Johnson filed his tax return on June 2 of Year 2 and paid the balance due. The return reflected a tax liability of $50,000 and estimated tax payments made timely of $45,000. Based on these facts, Mr. Johnson owes
Failure to
File Penalty
$0
Failure to
Pay Penalty
$50
Failure to
File Penalty
$0
Failure to
Pay Penalty
$25
Failure to
File Penalty
$500
Failure to
Pay Penalty
$50
Failure to
File Penalty
$250
Failure to
Pay Penalty
$25
Susan, a single filer, started a home-based dress business on March 1, Year 2. She was an employee and paid income taxes of $6,000 for Year 1. Susan’s business had net income of $0, $9,000, $11,000, and $15,000 respectively for each of the calendar quarters in Year 2. Susan’s total tax liability for the year was $5,500. Her first payment of estimated taxes is due
April 15.
No estimates due if Susan files by January 31, Year 3.
June 15.
Susan’s tax liability for Year 1 exceeds 90% of her Year 2 tax liability so no estimates are required to be paid.
William and Nancy Bonnie file jointly for 2022, and each works for two employers. William earned $10,000 from the first employer and $30,000 from the second. Nancy earned $68,000 from the first employer and $79,800 from the second. Each employer withheld Social Security taxes. What is the amount of William’s and Nancy’s credits for the excess Social Security taxes paid in 2022?
William
$0
Nancy
$49.60
William
$49.60
Nancy
$0
William
$0
Nancy
$0
William
$2,529.60
Nancy
$2,529.60
Pat Garrett worked for two different employers during 2022. He earned $62,800 from the first employer and $85,800 from the second. Each employer withheld Social Security taxes. What is the amount of Pat Garrett’s credit for the excess Social Security taxes paid in 2022?
$0
$99.20
$122.40
$1,600
An employer must deduct and withhold Social Security tax up to what amount of an employee’s wages?
$132,900
$137,700
$142,800
$147,000
Elizabeth, a calendar-year taxpayer, filed her Year 1 individual return on March 15, Year 2. She did not pay her Year 1 income tax liability in full until March 30, Year 3. If Elizabeth discovers a mistake on her Year 1 return, what is the last day she may file a claim for refund?
March 15, Year 4.
March 15, Year 5.
March 30, Year 5.
April 15, Year 5.
If an individual paid income taxes in the current year through withholding but did not file a current-year return because his or her income was insufficient to require the filing of a return, the deadline for filing a refund claim is
2 years from the date the tax was paid.
2 years from the date a return would have been due.
3 years from the date the tax was paid.
3 years from the date a return would have been due.
Ms. Smith, a calendar-year taxpayer, made estimated tax payments of $1,000 and got an extension of time to October 15, Year 2, to file her Year 1 tax return. She filed her return on October 1, Year 2. She filed an amended return on December 11, Year 3, and paid an additional $400 tax due on that date. On November 26, Year 5, Ms. Smith claimed a refund of $800 on the Year 1 return amended in December Year 3. What is the maximum amount she could receive?
$0
$400
$800
$1,000
Which of the following is NOT a qualifying student for purposes of the Lifetime Learning Credit?
A student in a graduate program.
A part-time student (less than half-time).
A student in a vocational program.
All are qualifying students for the Lifetime Learning Credit.
