Federal Taxation Chapter 13 Questions
And Answers With Verified Solutions
Rated A+ Latest Updated 2025
Credit for child and dependent care expenses - ANSWER✔✔ A tax credit ranging
from 20 percent to 35 percent of employment-related expenses (child and
dependent care expenses) for amounts of up to $6,000 is available to individuals
who are employed (or deemed to be employed) and maintain a household for a
dependent child under age 13, disabled spouse, or disabled dependent. § 21.
Credit for elderly or disabled taxpayers - ANSWER✔✔ enacted to mitigate the
perceived inequity of taxpayers with equal incomes paying different amounts of
Federal Income Tax
ex: G (age 66) sole income is $17,000 of SS. Pays $0 because SS benefits are
excluded from gross income. A (age 66) sole income is $17,000 from pension.
Pays $295 as follows: $17,000 less basic std deduction -$12,400 less additional
standard deduction -$1,650.
Earned Income Tax Credit (EITC) - ANSWER✔✔ helps offset the effect of SS &
Medicare taxes on wages of the working poor & provides an incentive to work.
pay-as-you-go - ANSWER✔✔ taxpayers or their employers are required to make
deposits with the Federal government during the year related to the annual tax
liability
tax credit - ANSWER✔✔ used by Congress to achieve social or economic
objectives or to promote equality among different types of taxpayers
Deduction vs Credit - ANSWER✔✔ Tax Deductions reduce the taxpayer's tax
base and depends on the tax rate
,Tax Credits reduce the taxpayer's liability not affected by the tax rate
Refundable Tax Credit - ANSWER✔✔ paid to the tax payer even if the amount
exceeds the taxpayer's tax liability
Nonrefundable Tax Credit - ANSWER✔✔ not paid if they exceed the taxpayer's
tax liability (some can carry over)
General Business Credit - ANSWER✔✔ the aggregate of numerous different tax
credits available to business enterprises
General Business Credit - 2 special rules - ANSWER✔✔ 1. Any unused credit
must be carried back 1 year and forward 20 years
2. For any tax year, the general business credit is limited to the tax payer's net
income tax reduced by the greater of: a) the tentative minimum tax (from AMT
formula) -OR- b) 25% of net regular tax liability (ie regular tax liability reduced by
certain nonrefundable credits) that exceeds $25,000
Aleshia's general business credit for the current year is $70,000. Her net income
tax is $150,000, tentative minimum income tax is $130,000, and net regular tax
liability is $150,000. She has no other tax credits. What is Aleshia's general
business credit for the tax year? - ANSWER✔✔ $20,000
computed:
Net income tax $150,000
Less: the greater of
$130,000 (tentative minimum tax)
$31,250 [25%($150,000 - $25,000)] ($130,000)
Amount of general business credit allowed $20,000
, Aleshia has $50,000 ($70,000 - $20,000) of unused GBC that may be carried back
or forward
unused general business credit - ANSWER✔✔ Initially carried back one year and
applied to reduce the tax liability for that year (the taxpayer may receive a refund
for that year)
Any remaining unused tax credit is then carried forward 20 years
FIFO method - ANSWER✔✔ applied to carrybacks, carryovers, and utilization of
credits earned during a particular year. Minimizes the potential for loss of a general
business credit benefit due to the expiration of credit carryovers.
Rehabilitation Expenditures Credit - ANSWER✔✔ A credit that is based on
expenditures incurred to rehabilitate industrial and commercial buildings and
certified historic structures. The credit is intended to discourage businesses from
moving from older, economically distressed areas to newer locations and to
encourage the preservation of historic structures. § 47.
Calculating the Rehabilitation Expenditure credit - ANSWER✔✔ 20% of qualified
rehabilitation expenditures related to a certified historic structure (residential or
nonresidential) taken ratably over a 5 year period starting the year the building is
placed in service
-basis of the building must be reduced by the full amount of the credit.
Qualifying for the Rehabilitation Expenditure Credit - ANSWER✔✔ certified
historic structures MUST be substantially rehabilitated during a 24 month period
And Answers With Verified Solutions
Rated A+ Latest Updated 2025
Credit for child and dependent care expenses - ANSWER✔✔ A tax credit ranging
from 20 percent to 35 percent of employment-related expenses (child and
dependent care expenses) for amounts of up to $6,000 is available to individuals
who are employed (or deemed to be employed) and maintain a household for a
dependent child under age 13, disabled spouse, or disabled dependent. § 21.
Credit for elderly or disabled taxpayers - ANSWER✔✔ enacted to mitigate the
perceived inequity of taxpayers with equal incomes paying different amounts of
Federal Income Tax
ex: G (age 66) sole income is $17,000 of SS. Pays $0 because SS benefits are
excluded from gross income. A (age 66) sole income is $17,000 from pension.
Pays $295 as follows: $17,000 less basic std deduction -$12,400 less additional
standard deduction -$1,650.
Earned Income Tax Credit (EITC) - ANSWER✔✔ helps offset the effect of SS &
Medicare taxes on wages of the working poor & provides an incentive to work.
pay-as-you-go - ANSWER✔✔ taxpayers or their employers are required to make
deposits with the Federal government during the year related to the annual tax
liability
tax credit - ANSWER✔✔ used by Congress to achieve social or economic
objectives or to promote equality among different types of taxpayers
Deduction vs Credit - ANSWER✔✔ Tax Deductions reduce the taxpayer's tax
base and depends on the tax rate
,Tax Credits reduce the taxpayer's liability not affected by the tax rate
Refundable Tax Credit - ANSWER✔✔ paid to the tax payer even if the amount
exceeds the taxpayer's tax liability
Nonrefundable Tax Credit - ANSWER✔✔ not paid if they exceed the taxpayer's
tax liability (some can carry over)
General Business Credit - ANSWER✔✔ the aggregate of numerous different tax
credits available to business enterprises
General Business Credit - 2 special rules - ANSWER✔✔ 1. Any unused credit
must be carried back 1 year and forward 20 years
2. For any tax year, the general business credit is limited to the tax payer's net
income tax reduced by the greater of: a) the tentative minimum tax (from AMT
formula) -OR- b) 25% of net regular tax liability (ie regular tax liability reduced by
certain nonrefundable credits) that exceeds $25,000
Aleshia's general business credit for the current year is $70,000. Her net income
tax is $150,000, tentative minimum income tax is $130,000, and net regular tax
liability is $150,000. She has no other tax credits. What is Aleshia's general
business credit for the tax year? - ANSWER✔✔ $20,000
computed:
Net income tax $150,000
Less: the greater of
$130,000 (tentative minimum tax)
$31,250 [25%($150,000 - $25,000)] ($130,000)
Amount of general business credit allowed $20,000
, Aleshia has $50,000 ($70,000 - $20,000) of unused GBC that may be carried back
or forward
unused general business credit - ANSWER✔✔ Initially carried back one year and
applied to reduce the tax liability for that year (the taxpayer may receive a refund
for that year)
Any remaining unused tax credit is then carried forward 20 years
FIFO method - ANSWER✔✔ applied to carrybacks, carryovers, and utilization of
credits earned during a particular year. Minimizes the potential for loss of a general
business credit benefit due to the expiration of credit carryovers.
Rehabilitation Expenditures Credit - ANSWER✔✔ A credit that is based on
expenditures incurred to rehabilitate industrial and commercial buildings and
certified historic structures. The credit is intended to discourage businesses from
moving from older, economically distressed areas to newer locations and to
encourage the preservation of historic structures. § 47.
Calculating the Rehabilitation Expenditure credit - ANSWER✔✔ 20% of qualified
rehabilitation expenditures related to a certified historic structure (residential or
nonresidential) taken ratably over a 5 year period starting the year the building is
placed in service
-basis of the building must be reduced by the full amount of the credit.
Qualifying for the Rehabilitation Expenditure Credit - ANSWER✔✔ certified
historic structures MUST be substantially rehabilitated during a 24 month period
