Leah Pasternak Federal Taxation ACC307 Chapter 12: Tax Credits and Payments Homework Submission 5.

. Some of the tax issues that Clint would be facing could be: Use of current tax credits and suspended credits. Benefits from tax credits. At-risk and passive activity loss rules. Net operating loss rules.

12. The earned income credit is meant to provide tax equity to low-income taxpayers, and to encourage them to enter and remain in the workforce. The credit is designed to reimburse the taxpayer for many Federal taxes, including the income, Social Security, and gasoline taxes. This gives people the ability offset some of these expenses so as to provide added equity to the family finances. 16 a. The rehabilitation credit is intended to discourage businesses from moving from older, economically distressed areas to newer locations and to encourage the preservation of historic structures. b. The research activities credit is the sum of three components: an incremental research activities credit, a basic research credit, and an energy research credit, and is designed to encourage research and experimentation. c. The low-income housing credit was designed to encourage building owners to make available affordable housing for low-income individuals. d. The earned income credit is justified as a means of providing tax equity to the working poor. e. The foreign tax credit is used for individual taxpayers and corporations who may claim a tax credit for foreign income tax paid on income earned and subject to tax in another country or a U.S. possession and it is advantageous because it provides a direct offset against the U.S. tax liability. 20. Kathy should withhold FICA taxes for her husband Joe but not for her daughter Marla because she is not 18 years old. 21. Joan is subject to the Federal self-employment tax on her net earnings if they are in an amount of $400 or more for the year. The 2012 self-employment tax is 10.4% of self-employment earnings up to $110,100 plus 2.9% of the total amount of self-employment earnings. Self-employed taxpayers deduct a portion of the self-employment tax in determining the self-employment tax and in computing AGI. 24. The sources of the $60,000 general business credit allowed in 2012 are the carryovers of $45,000 from the four previous years and $15,000 of the $36,000 general business credit generated in 2012. The carryovers from each of the four previous years may be used. 25. 33. Coopers alternatives as to its foreign tax payments are as follows.

Deduct $2.5 million in foreign taxes in computing taxable income, or Deduct the $1.5 million value-added tax (VAT) and use the $1 million income tax payment in computing a foreign tax credit (FTC).

37 a. Durrell and Earlines child tax credit for the year would be $2,0000 b. If their AGI is $122,000 instead of $68,000 then their child tax credit would be $1,400 39. Jim and Mary Jeans credit for child and dependent expenses would be $1,612 which is computed as follows 5,200 x 31%.