Chapter 6: Credits and Special Taxes Key
1. The individual alternative minimum tax liability may not exceed the regular tax liability of the taxpayer.
2. Unearned income of a 16-year-old child may be taxed at his or her parents’ income tax rate.
3. Married taxpayers must file a joint tax return to claim the child and dependent care credit.
4. New York is a community property state.
5. In determining the amount of the child and dependent care credit, there is a limit of $2,000 on the amount of
qualified expenses for one dependent.
6. Net unearned income of certain minor children is taxed at their parents’ tax rates.
7. A credit of $24 offers greater tax relief than a deduction of $24.
8. The use of the earned income credit could result in a taxpayer receiving a refund even though he or she has
not paid any taxes.
9. Amounts paid to a relative generally do not qualify as child care expenses.
10. The alternative minimum tax must be paid only if the tentative minimum tax exceeds a taxpayer’s regular
tax liability.
11. If the net unearned income of a minor child is to be taxed at the parents’ tax rate, the parents may elect,
under certain conditions, to include the child’s gross income on their tax return.
12. Salary earned by minors may be taxed at their parents’ tax rate.
13. The individual alternative minimum tax rate for 2011 is 26 percent on the first $175,000 of income and 28
percent on income above $175,000.
14. To be eligible for the earned income credit for 2011, a taxpayer must have a “qualifying child”.
15. The foreign tax credit applies only to foreign corporations.
16. For 2011, the maximum amount of expenses that qualify for the child and dependent care credit is the same
for three dependents as it is for two dependents.
17. Most states are community property states.
18. In all community property states, income from community property is community income.
19. A taxpayer with earned income of $50,000 is not eligible to claim the credit for child and dependent care
expenses.
20. The total expenses that can be taken as a credit for all tax years for adoption of a child without “special
needs” is $6,000.
21. An individual may claim both a credit and an exclusion from income in connection with the adoption of an
eligible child, but may not claim both a credit and an exclusion for the same expense.
22. Taxpayer Q has net taxable income of $30,000 from Country Y which imposes a 40 percent income tax. In
addition to the income from Country Y, taxpayer Q has net taxable income from U.S. sources of $120,000, and
U.S. tax liability, before the foreign tax credit, of $41,750. What is the amount of Q’s foreign tax credit?
23. Robert and Mary file a joint tax return for 2011, with adjusted gross income of $33,000. Robert and Mary
earned income of $20,000 and $12,000 respectively, during 2011. In order for Mary to be gainfully employed,
they pay the following child care expenses for their 4-year-old son, John:
Union Day Care Center
$1,500
Wilma, baby sitter (Robert’s mother)
1,000
What is the amount of the child and dependent care credit they should report on their tax return for 2011?
A. $390
24. In 2011, Alex has income from wages of $16,000, adjusted gross income of $18,000, and tax liability of
$300 before the earned income credit. What is the amount of Alex’s earned income credit for 2011, assuming
his 5-year old dependent son lived with him for the full year?
A. $0
25. Clark, a widower, maintains a household for himself and his two dependent preschool children. For the year
ended December 31, 2011, Clark earned a salary of $36,000. He paid $3,500 to a housekeeper to care for his
children in his home, and also paid $1,500 to a kiddie play camp for child care. He had no other income or
expenses during 2011. How much can Clark claim as a child care credit in 2011?
A. $360
26. For the 2011 tax year, Sally, who is divorced, reported the following items of income:
Interest income
$ 600
Wages
4,000
Earnings from self-employment
3,000
She maintains a household for herself and her 1-year-old son who qualifies as her dependent. What is the earned income credit available to her for
2011, using the tables?
A. $1,029
27. Glen and Mary have two children, Chad (12-years-old) and Linda (8-years-old). For 2011, Chad has $4,000
in net unearned income and Linda has net unearned income of $1,000. If the total parental tax for 2011 is
$1,400, how would the tax be allocated between Chad and Linda?
A. $1,400 to Chad and $0 to Linda
28. Which of the following is not an adjustment or tax preference item for 2011 for purposes of the individual
alternative minimum tax?
29. William and Irma have two children, Tom (age 13) and Sara (age 8). For 2011, Tom and Sara have a total
parental tax of $5,600. Tom’s net unearned income is $15,000, while Sara’s net unearned income is $5,000. How
much of the parental tax would be allocated to Sara on her 2011 tax return?
30. For 2011, which of the following is a tax adjustment or tax preference item for the individual alternative
minimum tax computation?
31. In 2011, which of the following children would have income taxed at their parents’ rates?
32. Which of the following tax credits is not available for the 2011 tax year?
33. Which of the following itemized deductions may not be deducted in computing the individual alternative
minimum tax?
35. Which of the following is true of the alternative minimum tax?
A. The alternative minimum tax is designed to ensure that high income taxpayers do not pay excessive amounts
of income tax
36. Which of the following is not a true statement regarding community property law?
A. For a married couple living in California, income derived from separate property is taxable to the owner of
the property
37. Taxpayers are allowed two tax breaks for adoption expenses. They are allowed:
Qualified Expenses
Paid personally
Paid by employer
38. In the case of the adoption of a child who is not a U.S. citizen or resident of the U.S., the credit for qualified
adoption expenses is available:
39. Denice is divorced and files a single tax return claiming her two children, ages 7 and 9, as dependents. Her
adjusted gross income for 2011 is $79,500. Denice’s Child Credit for 2011 is:
40. Curly and Rita are married, file a joint return, and have two dependent children, ages 11 and 13. Their
combined income is $116,000. By how much is their child credit reduced in 2011?
41. Keith has a 2011 tax liability of $1,250 before taking into account his American Opportunity credit. He
paid $2,700 in qualifying expenses, was a full-time student, was not claimed as a dependent on his parents’
return, and his American Opportunity credit was not subject to phase out. What is the amount of his American
Opportunity credit allowed?
42. Hal is enrolled for one class at a local community college; tuition cost him $250. Hal’s AGI is $20,000. Hal
can take a lifetime learning credit of:
43. In 2011, the child tax credit available to married taxpayers filing jointly is phased out, beginning at:
44. The earned income credit:
45. The child and dependent care provisions:
46. The American Opportunity credit
47. A tax credit is allowed for qualified adoption expenses paid by taxpayers
48. A parent may elect to include a child’s income in the parent’s return if:
49. Which of the common deductions below are allowed for both regular tax purposes and for Alternative
Minimum Tax (AMT) purposes?
50. Which of the common deductions below are allowed for regular tax purposes but not for Alternative
Minimum Tax (AMT) purposes?
51. Assume Karen is 12 years old and her only income is $2,500 of interest income from a bank account with
money her parents have given her to save for college. What are the options Karen has for filing her tax return?
52. Which of the following types of income is not subject to the “kiddie tax?”
53. Bob and Carol file their tax returns using the married filing jointly status. Their AGI is $131,000. They
have two children, ages 11 and 7. How much child tax credit can Bob and Carol claim for their two children?
54. Which one of the following taxpayers qualify for the earned income credit?
55. Jessica and Robert have two young children. They have $7,000 of qualified child care expenses and an
AGI of $24,000 in 2011. What is their allowable child care credit?
56. Steve goes to Tri-State University and pays $40,000 in tuition. Steve works a part-time job to pay for his
schooling and has an AGI of $17,000. How much is his American Opportunity Credit?
57. Jim has foreign income. He earns $25,000 from Country A which taxes the income at a 20 percent
rate. He also has income from Country B of $15,000. Country B taxes the $15,000 at a 10 percent rate. His
U.S. taxable income is $90,000. His U.S. income tax before credits is $19,000. What is his foreign tax credit?
58. Carla and Bob finalized an adoption in 2011. Their adoption fees totaled $9,500. They have AGI of
$205,000 for 2011. What is their adoption credit?
A. $9,500
59. Robert buys energy-efficient windows for his house in 2011 for $8,000. What will his Energy- Efficient
Home Improvement credit be for 2011? He has not claimed the credit previously.
60. Molly and Steve are married and live in Texas. Molly earns a salary of $50,000 and Steve owns a rental
property that gives him $35,000 of income. If they filed separate tax returns, what amount of income would
Steve report?
61. Which one of the following conditions must be satisfied in order for a married taxpayer to be taxed on only
his income if he resides in a community property state?
62. For 2011, Beatrice qualifies for the earned income credit. She has one daughter who is 7 years old. Her
earned income and adjusted gross income for 2011 are $6,000.
a.
Using the EIC tables, calculate the amount of her 2011 earned income credit.
b.
Calculate the amount of Beatrice’s 2011 earned income credit assuming her earned income for 2011 is $8,200 and her adjusted gross
income is $10,000.