Question23. LO.2 Charles generated a tentative general business credit of $42,000 for the current year. His net regular tax liability before the general business credit is $107,000, and his tentative minimum tax is $88,000. Compute Charles’s allowable general business credit for the year.
24. LO.2 Oak Corporation holds the following general business credit carryovers.
2009 $ 5,000
Total carryovers $45,000
If Oak’s general business credit generated by 2013 activities equals $36,000 and the total credit allowed during the current year is $60,000 (based on tax liability), what amounts of the current general business credit and carryovers are utilized against the 2013 income tax liability? What is the amount of unused credit carried forward to 2014?
25. LO.3, 7 Paul Chaing (4522 Fargo Street, Geneva, IL 60134) acquires a qualifying historic structure for $350,000 (excluding the cost of the land) and plans to substantially rehabilitate the structure. He is planning to spend either $320,000 or $380,000 on rehabilitation expenditures. Write a letter to Paul and a memo for the tax research files explaining the following for the two alternative expenditures.
a. The computation that determines the rehabilitation expenditures tax credit available.
b. The effect of the credit on Paul’s adjusted basis in the property.
c. The cash-flow differences as a result of the tax consequences related to his expenditure choice.
26. LO.3 Green Corporation hires six individuals on January 4, 2013, all of whom qualify for the work opportunity credit. Three of these individuals receive wages of $8,500 during 2013, and each individual works more than 400 hours during the year. The other three individuals each work 300 hours and receive wages of $5,000 during the year.
a. Calculate the amount of Green’s work opportunity credit for 2013.
b. If Green pays total wages of $140,000 to its employees during the year, how much of this amount is deductible in 2013, assuming that the work opportunity credit is taken?
27. LO.3 In March 2013, Sparrow Corporation hired three individuals—Austin, Adam, and
Angela—all of whom are certified as long-term family assistance recipients. Each of these individuals earned $11,000 during 2013. Only Adam continued to work for Sparrow in 2014, and he earned $13,500 then.
In March 2014, Sparrow hired Sam, who also is certified as a long-term family assistance recipient. During 2014, Sam earned $12,000.
a. Compute Sparrow’s work opportunity credit for 2013 and 2014.
b. If Sparrow pays total wages to its employees of $325,000 in 2013 and $342,000 in 2014, what is the entity’s wage deduction in 2013 and 2014?
28. LO.3, 7 Tom, a calendar year taxpayer, informs you that during the year, he incurs expenditures of $40,000 that qualify for the incremental research activities credit. In addition, Tom’s research-credit base amount for the year is $32,800.
a. Determine Tom’s incremental research activities credit for the year.
b. Tom is in the 25% tax bracket. Determine which approach to the research expenditures and the research activities credit (other than capitalization and subsequent amortization) would provide the greater tax benefit.
29. LO.3 Ahmed Zinna (16 Southside Drive, Charlotte, NC 28204), one of your clients, owns two retail establishments in downtown Charlotte and has come to you seeking advice concerning the tax consequences of complying with the Americans with Disabilities
Act. He understands that he needs to install various features at his stores (e.g., ramps, doorways, and restrooms that are handicap accessible) to make them more accessible to disabled individuals. He asks whether any tax credits are available to help offset the cost of the necessary changes. He estimates the cost of the planned changes to his facilities as follows.
Location Projected Cost
Calvin Street $22,000
Stowe Avenue 8,500
Ahmed reminds you that the Calvin Street store was constructed in 2004, and that the
Stowe Avenue store is in a building that was constructed in 1947. Ahmed operates his business as a sole proprietorship and has approximately eight employees at each location.
Write a letter to Ahmed in which you summarize your conclusions concerning the tax consequences of his proposed capital improvements.
30. LO.3 Jimmy Limited added elevators, access ramps, and several technological improvements to the 1923 building in which it operates a consulting business. Jimmy is an LLC with five full-time employees and about $3 million in gross receipts. The improvements were made to improve access to the building. Expenditures for the accessibility project totaled $7,500. Compute Jimmy’s disabled access credit for the tax year.
31. LO.3 Employees at the Hobby Hut requested that the company provide assistance in locating professional-quality child care services during business hours. The Hut, a C corporation, contracts with the local Kiddie Kare agency to provide Hut employees with information about child care providers’ location, pricing, customer ratings, and operating hours. This year, the Hut paid $15,000 under this contract, which includes a flat fee for a guaranteed number of employee contacts and a per-service charge after that. Compute the Hobby Hut’s credit for employer-provided child care for the tax year.