Posted: December 20th, 2021

tax problems – questin and answer

1. LO.1 Would an individual taxpayer receive greater benefit from deducting an expenditure or from taking a credit equal to 25% of the expenditure? How would your response change if the item would only be deductible from AGI?2. LO.2 What is a refundable credit? Give examples. What is a nonrefundable credit? Give examples.3. LO.2 Tax credits are offset against the tax liability in a prescribed order. Explain why the order in which credits are utilized is important.4. LO.2, 3 Identify the components of the general business credit, and discuss the treatment of unused general business credits.5. LO.3 Clint, a self-employed engineering consultant, is contemplating purchasing an old building for renovation. After the work is completed, Clint plans to rent out two thirds of the floor space to businesses; he would live and work in the remaining portion.Identify the relevant tax issues for Clint.6. LO.3 Sonja is considering the purchase and renovation of an old building. She has heard about the tax credit for rehabilitation expenditures, but does not know the specific rules applicable to the credit. Explain the most important and relevant provisions for her.7. LO.3 Discuss the purpose of the work opportunity tax credit. Who receives the tax benefits from the credit? Give examples of the types of individuals who, if hired, give rise to the credit.8. LO.3 Explain the purpose and calculation procedure of the work opportunity tax credit targeted to those who have received long-term family Helpance.9. LO.3 Explain the alternatives a taxpayer has in claiming the deduction and credit for research and experimentation expenditures.10. LO.3 Explain the purpose of the disabled access credit, and identify several examples of the type of structural changes to a building that qualify for the credit.11. LO.4 Can the earned income credit be characterized as a form of negative income tax?Why or why not?12. LO.4 How does the earned income credit fit into the Federal government’s plan to fight poverty?13. LO.4 From the standpoint of a U.S. business, why is the foreign tax credit needed?14. LO.4 What purpose is served by the overall limitation on the foreign tax credit?15. LO.4 Distinguish between the child tax credit and the credit for child and dependent care expenses.16. LO.3, 4 Discuss the rationale underlying the enactment of the following tax credits.a. Rehabilitation expenditures credit.b. Research activities credit.c. Low-income housing credit.d. Earned income credit.e. Foreign tax credit.17. LO.4, 7 Polly and her husband, Leo, file a joint return and expect to report 2012 AGI of $75,000. Polly’s employer offers a child and dependent care reimbursement plan that allows up to $7,000 of qualifying expenses to be reimbursed in exchange for a $7,000 reduction in the employee’s salary. Because Polly and Leo have two minor children requiring child care that costs $6,500 each year, Polly is wondering if she should sign up for the program instead of taking advantage of the credit for child and dependent care expenses.Polly and Leo are in the 25% tax bracket. Analyze the effect of the two alternatives.How would your answer differ if Polly and Leo’s AGI was $25,000 instead of $75,000?Assume in that case that their marginal tax rate is 10%.18. LO.4 Mark and Lisa are approaching an exciting time in their lives as their oldest son,Austin, graduates from high school and moves on to college. What are some of the tax issues that Mark and Lisa should consider as they think about paying for Austin’s college education?19. LO.3, 4 Identify two tax credits enacted by Congress that are designed to encourage the establishment of or contributions to qualified retirement plans.20. LO.5 Kathy owns and operates a grocery store as a sole proprietor. She pays wages to her husband Joe and their 17-year-old daughter Marla, both of whom work at the store.Should Kathy withhold FICA taxes from the wages paid to Joe and Marla? Explain.21. LO.6 Joan is a self-employed consultant. What is her 2012 exposure to the Federal self employment tax? Discuss the tax rates that apply to Joan’s profits, and the income base amounts for the year.22. LO.6 Chloe, a self-employed dentist, tells you “My profits for the year total $300,000, so I don’t need to pay any more Federal self-employment taxes.” Evaluate Chloe’s comment.

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