32. LO.4 Which of the following individuals qualify for the earned income credit?
a. Thomas is single, 21 years old, with no qualifying children. His income consists of $9,000 in wages.
b. Shannon, who is 27 years old, maintains a household for a dependent 11-year-old son and is eligible for head-of-household tax rates. Her income consists of $16,050 of salary and $50 of taxable interest (Shannon’s AGI is $16,100).
c. Keith and Susan, both age 30, are married and file a joint return. Keith and Susan have no dependents. Their combined income consists of $28,500 of salary and $100 of taxable interest (their AGI is $28,600).
d. Colin is a 26-year-old, self-supporting, single taxpayer. He has no qualifying children and generates earnings of $9,000.
33. LO.4, 7 Cooper National is incorporated in Alabama. It generated a $5 million profit on its overseas operations this year. Cooper paid the following to various other countries.
• $1 million in income taxes.
• $1.5 million in value added taxes.
What are Cooper’s alternatives as to the treatment of these tax payments on its U.S. Federal income tax returns?
34. LO.4 Jimenez Enterprises is incorporated in Arkansas. It generated a $5 million profit on its overseas operations this year. Jimenez paid $1 million in income taxes to various countries on these profits. Jimenez’s marginal Federal income tax rate is 35%. Compute the Jimenez foreign tax credit and carryovers for the year.
35. LO.4 Same as Problem 34, except that Jimenez paid $2 million in income taxes to other countries.
36. LO.4 Ann and Bill were on the list of a local adoption agency for several years seeking to adopt a child. Finally, in 2012, good news comes their way and an adoption seems imminent.
They pay qualified adoption expenses of $4,000 in 2012 and $11,000 in 2013.
The adoption becomes final in 2013. Ann and Bill always file a joint income tax return.
a. Determine the amount of the adoption expenses credit available to Ann and Bill if their combined annual income is $100,000. What year(s) will they benefit from the credit?
b. If Ann and Bill’s modified AGI in 2012 and 2013 is $200,000, calculate the amount of the adoption expenses credit.
37. LO.4 Durell and Earline are married, file a joint return, and claim dependency exemptions for their two children, ages 5 years and 6 months. They also claim Earline’s 18- year-old son from a previous marriage as a dependent. Durell and Earline’s combined
AGI is $68,000.
a. Compute Durell and Earline’s child tax credit.
b. Assume the same facts, except that Durell and Earline’s combined AGI is $122,000.
Compute their child tax credit.
38. LO.4 Paul and Karen are married, and both are employed (Paul earned $44,000 and
Karen earned $9,000). Paul and Karen have two dependent children, both under the age of 13. Paul and Karen pay $3,800 to various unrelated parties to care for their children while they are working. Assuming that Paul and Karen file a joint return, what, if any, is their tax credit for child and dependent care expenses?
39. LO.4 Jim and Mary Jean are married and have two dependent children under the age of 13. Both parents are gainfully employed and earn salaries as follows: $16,000 (Jim) and $5,200 (Mary Jean). To care for their children while they work, Jim and Mary Jean pay Eleanor (Jim’s mother) $5,600. Eleanor does not qualify as a dependent of Jim and
Mary Jean. Jim and Mary Jean file a joint Federal income tax return. Compute their credit for child and dependent care expenses.
40. LO.4, 7 Bernadette, a longtime client of yours, is an architect and the president of the local Rotary chapter. To keep up to date with the latest developments in her profession, she attends continuing education seminars offered by the architecture school at State
University. This year, Bernadette spends $2,000 on course tuition to attend such seminars.
She also spends another $400 on architecture books during the year. Bernadette’s son is a senior majoring in engineering at the University of the Midwest.
During the calendar year, Bernadette’s son incurs the following expenses: $8,200 for tuition ($4,100 per semester) and $750 for books and course materials. Bernadette’s son, whom she claims as a dependent, lives at home while attending school full-time. Bernadette is married, files a joint return, and has a combined AGI with her husband Morrie of $110,000.
a. Calculate Bernadette’s education tax credit.
b. In her capacity as president of the local Rotary chapter, Bernadette has asked you to present a 20- to 30-minute speech outlining the different ways the tax law helps defray (1) the cost of higher education and (2) the cost of continuing education once someone is in the workforce. Prepare an outline of possible topics for presentation.
A tentative title for your presentation is “How Can the Tax Law Help Pay for
College and Continuing Professional Education?”
41. LO.4 Kathleen and Glenn decide that this is the year to begin getting serious about saving for their retirement by participating in their employers’ § 401(k) plans. As a result, they each have $3,000 of their salary set aside in their qualified plans.
a. Calculate the credit for certain retirement plan contributions available to Kathleen and Glenn if the AGI on their joint return is $35,000.
b. Kathleen and Glenn persuade their dependent 15-year-old son, Joel, to put $500 of his part-time earnings into a Roth IRA during the year. What is the credit for certain retirement plan contributions available to Joel? His AGI is $7,000.