CHAPTER 12 TAX CREDITS AND PAYMENTS

1.

Julia is 30 years old, unmarried with a 9 year-old daughter, and has earnings during 2014 of $19,700. Does she qualify for the earned income credit? If so, calculate the amount of credit that is available to her.

2. Jack and Jill are married, have three children, and have earnings during 2014 of $28,500. Do they qualify for the earned income credit? If so, calculate the amount of credit that is available to them.

3. Henry, age 68, and Wilma, age 69, are married retirees who received the following income and retirement benefits during the year.

Fully taxable pension from Henry’s former employer	$8,800
Taxable interest	4,500
Social Security benefits	2,400

Assume Henry and Wilma file a joint return, have no deductions forAGI, and do notitemize their deductions. Are they eligible for the tax credit for the elderly? If so, calculate the amount of the credit, assuming the credit is notlimited by their income tax liability.

4. Summer Corporation’s business is international in scope and is subject to income taxes in several countries. Summer’s earnings and income taxes paid in the relevant foreign countries are:

Country	Income		Taxes
A	$1,000,000		$500,000
B	300,000		30,000
C	400,000		120,000
Total	$1,700,000		$650,000

If Summer Corporation’s worldwide income subject to taxation in the United States is $2,400,000 and the U.S. income tax due prior to the foreign tax credit is $816,000, compute the allowable foreign tax credit. If, instead, the total foreign income taxes paid were $550,000, compute the allowable foreign tax credit.

5. Dabney and Nancy are married, both gainfully employed, and have two children who are 3 and 6 years old. Dabney’s salary is $35,000 while Nancy’s salary is $40,000. During the year, they spend $7,000 for child care expenses that are required so both of them can work outside of the home. Calculate the credit for child and dependent care expenses.

6. Bradley has two college-age children, Clint, a freshman at State University, and Abigail, a junior at Northwest University. Both Clint and Abigail are full­time students. Clint’s expenses during the 2014 fall semester are as follows: $2,400 tuition, $250 books and course materials, and $1,600 room and board. Abigail’s expenses for the 2014 calendar year are as follows: $10,200 tuition, $1,200 books and course materials, and $3,600 room and board. Tuition and the applicable room and board costs are paid at the beginning of each semester. Bradley is married, files a joint tax return, claims both children as dependents, and has a combined AGI with his wife of $114,000 for 2014. Determine Bradley’s available education tax credit for 2014.