CHAPTER 12 TAX CREDITS AND PAYMENTS

1. In describing FICA taxes, which (if any) of the following statements is incorrect?

a. The base amounts for 2015 probably will increase from the 2014 amounts.

b. The base amounts for the Social Security and Medicare portions are the same.

c. If both spouses work, excess FICA taxes need notresult.

d. Excess FICA taxes can be claimed as an income tax credit.

e. None of the above.

2. Which of the following correctly reflects current rules regarding estimated tax payments for individuals?

a. Employees are notsubject to the estimated tax payment provisions.

b. Any penalty imposed for underpayment is deductible for income tax purposes.

c. Married taxpayers may not make joint estimated tax payments unless they file a joint income tax return.

d. No quarterly payments are required if the taxpayer’s estimated tax is under $1,000.

e. None of the above.

3. During the current year, Eleanor earns $120,000 in wages as an employee of an accounting firm. She also earns $13,000 in gross income from an outside consulting service she operates. Deductible expenses paid in connection with the consulting service amount to $3,000. Eleanor also has a recognized long-term capital gain of $1,000 from the sale of a stock investment. She must pay a self-employment tax on:

a. $0.

b. $10,000.

c. $13,000.

d. $14,000.

e. None of the above.

4. Pat generated self-employment income in 2014 of $76,000. The self-employment tax is:

a. $0.

b. $5,369.23.

c. $10,738.46.

d. $11,628.00.

e. None of the above.

5. The ceiling amounts and percentages for 2014 for the two portions of the self-employment tax are:

Social Security portion Medicare portion

a. $113,700; 12.4% Unlimited; 2.9%

b. $113,700; 15.3% Unlimited; 2.9%

c. $117,000; 12.4% Unlimited; 2.9%

d. $117,000; 2.9% Unlimited; 13.3%

e. None of the above.

6. Steve has a tentative general business credit of $110,000 for the current year. His net regular tax liability before the general business credit is $125,000, and his tentative minimum tax is $100,000. Compute Steve’s allowable general business credit for the year.

7. In January 2014, Tammy acquired an office building in downtown Syracuse, New York for $400,000. The building was originally constructed in 1932. Of the $400,000 cost, $40,000 was allocated to the land. Tammy immediately placed the building into service, but quickly realized that substantial renovation would be required to keep and attract new tenants. The renovations, costing $600,000, were of the type that qualifies for the rehabilitation credit. The improvements were completed in October 2014.

a. Compute Tammy’s rehabilitation tax credit for the year of acquisition.

b. Determine the cost recovery deduction for 2014.

c. What is the basis in the property at the end of its first year of use by Tammy?

8. In May 2010, Cindy incurred qualifying rehabilitation expenditures of $500,000 on a certified historic structure and properly claimed the tax credit for rehabilitation expenditures. In March 2014, she sold the building at a loss. Calculate the rehabilitation expenditures credit recapture that she must report in 2014.

9. In May 2014, Blue Corporation hired Camilla, Jolene, and Tyrone, all of whom are certified as long-term family assistance recipients. Each employee is paid $12,000 during 2014. Camilla and Tyrone continued to work for Blue Corporation in 2015, earning $14,000 each. Blue hired no additional employees during 2015.

a. Compute Blue Corporation’s work opportunity tax credits for 2014 and 2015.

b. Assume Blue Corporation pays total wages of $500,000 to its employees during 2014 and $560,000 during 2015. How much may Blue Corporation claim as a wage deduction for 2014 and 2015 if the work opportunity tax credit is claimed in both years?

10. Rick spends $750,000 to build a qualified low-income housing project, which is placed in service on January 1, 2014. He financed the project using his personal funds. What is the amount of the low-income housing credit that Rick may claim in 2014 (assuming a rate of 7.40%)? What is the total amount of the credit that Rick may claim as a result of the $750,000 expenditure?

11. Golden Corporation is an eligible small business for purposes of the disabled access credit. During the year, Golden makes the following expenditures on a structure originally placed in service in 1988.

Removal of architectural barriers	$ 8,500
Acquired equipment for disabled persons	6,250
	$14,750

In addition, $8,000 was expended by Golden on a building originally placed in service in the current year to ensure easy accessibility by disabled individuals. Calculate the amount of the disabled access credit available to Golden Corporation.