Problem 6-7Earned Income Credit (LO 6.

2)Margaret and David Simmons are married and file a joint income tax return. They have two dependent children, a daughter, Margo, 5 years old (Social Security number 316-31-4890), and a son, Daniel, who was born during the year (Social Security number 316-31-7894). Margaret's wages are $3,000, and David has wages of $14,000. In addition, they receive interest income of $200 during the year. Margaret and David do not have any other items of income and do not have any deductions for adjusted gross income.

Assuming the Simmons file Form 1040A for 2015, complete Schedule EIC and the Earned Income Credit Worksheet A.

1. $17,0002. $5,5483. $17,2005.

blank6. $5,548Note: Credits are used because they target tax relief to certain groups of taxpayers. Because of the progressive rate structure of the income tax, a deduction provides greater benefit to higher-income taxpayers, while a tax credit provides equal benefit, regardless of the taxpayer's income level. The earned income credit (EIC) is available to qualifying individuals with earned income and AGI below certain levels.

Problem 6-9Child and Dependent Care Credit (LO 6.3)Calculate the amount of the child and dependent care credit allowed for 2015 in each of the following cases, assuming the taxpayers had no income other than the stated amounts.If required, round to the nearest dollar.a. William and Carla file a joint tax return.

Carla earned $26,000 during the year, while William attended law school full-time for 10 months and earned no income. They paid $3,500 for the care of their 3-year-old child, Carl. b. Raymond and Michele file a joint tax return.

Raymond earned $32,500 during the year, while Michele earned $8,000 for the year from a part-time job. They paid $7,000 for the care of their two children under age 13.c. Beth is a single taxpayer who has two dependent children under age 5. Beth earned $23,500 in wages during the year and paid $6,700 for the care of her children.

a. $725Math: William's deemed income is less than Carla's ($250 x 10 months = $2,500 versus $26,000). $2,500 (expense limitation) x 29% (amount for $26,000 AGI) = $725.b. $1,320Math: In determining the credit, the maximum amount of qualified expenses to which the applicable percentage is applied is $3,000 for one dependent and $6,000 for two or more dependents. $6,000 (qualified expense limitation) x 22% (amount for $40,500 AGI) = $1,320.

c. $1,800Math: In determining the credit, the maximum amount of qualified expenses to which the applicable percentage is applied is $3,000 for one dependent and $6,000 for two or more dependents. $6,000 (qualified expense limitation) x 30% (amount for $23,500 AGI) = $1,800.Note: Taxpayers are allowed a credit for expenses for the care of their children and certain other dependents.

And this credit phases out for some.

Problem 6-20Education Tax Credits (LO 6.5)Janie graduates from high school in 2015 and enrolls in college in the fall. Her parents (who file a joint return) pay $4,000 for her tuition and fees.

a. Assuming Janie's parents have AGI of $170,000, what is the American Opportunity tax credit they can claim for Janie?b. Assuming Janie's parents have AGI of $75,000, what is the American Opportunity tax credit they can claim for Janie?

a. $1,250b.

$2,500Note: The HOPE credit, expanded and renamed the American Opportunity tax credit for 2009 through 2017, and the lifetime learning credit are the education credits available to help qualifying low-income and middle-income individuals defray the cost of higher education.Math: Janie's total American Opportunity tax credit will be 100% of $2,000 plus 25% of $2,000, or $2,500. Because her parents have AGI over $160,000 the credit is phased out partially: the credit is reduced by the following amount $2,500 x ($170,000 - $160,000)/$20,000 = $1,250. Therefore, the credit is $2,500 - $1,250 = $1,250.

Problem 6-21Education Tax Credits (LO 6.5)Jasper is single and a computer software consultant with a college degree.

He feels that one of the reasons for his success is that he continually updates his knowledge by taking classes at the local college in various areas related to software design and information technology. This year he spent $2,000 on course tuition and fees.a. Assuming Jasper has AGI of $92,000, how much lifetime learning credit can Jasper claim on his tax return?If Jasper were married and supporting a wife who was not working, how much lifetime learning credit can Jasper claim?b. Assuming Jasper is single and has AGI of $45,000, how much lifetime learning credit can Jasper claim on his tax return?

a.

1. $0a.2. $400b. $400Note: The HOPE credit, expanded and renamed the American Opportunity tax credit for 2009 through 2017, and the lifetime learning credit are the education credits available to help qualifying low-income and middle-income individuals defray the cost of higher education.

Problem 6-24Energy Credits (LO 6.8)Mike bought a solar electric pump to heat his pool at a cost of $2,500 in 2015. What is Mike's credit?Mike's credit would be
$0Note: Credits are used because they target tax relief to certain groups of taxpayers. Because of the progressive rate structure of the income tax, a deduction provides greater benefit to higher-income taxpayers, while a tax credit provides equal benefit, regardless of the taxpayer's income level.In 2015, two major energy credits are available to individual taxpayers to encourage the use of energy-efficient products. These include the credit for plug-in electric vehicles and a credit for solar, wind, and geothermal property.

Problem 6-25Energy Credits (LO 6.8)In 2015, Jeff spends $6,000 on solar panels to heat water for his main home.What is Jeff's credit for his 2015 purchases?
$1,800Note: Credits are used because they target tax relief to certain groups of taxpayers. Because of the progressive rate structure of the income tax, a deduction provides greater benefit to higher-income taxpayers, while a tax credit provides equal benefit, regardless of the taxpayer's income level. In 2015, two major energy credits are available to individual taxpayers to encourage the use of energy-efficient products. These include the credit for plug-in electric vehicles and a credit for solar, wind, and geothermal property.

Problem 6-27The Individual Alternative Minimum Tax (AMT) (LO 6.9)Select either "Yes" or "No" to indicate whether each of the following is a deduction allowed for alternative minimum tax (AMT) purposes.a. The standard deduction.

b. Personal and dependency exemptions.c. State income taxes, property taxes, and all other taxes deducted on Schedule A.d.

Miscellaneous itemized deductions taken on Schedule A.e. The deduction for home mortgage interest related to the purchase or improvement of a first or second residence.f. Medical expenses are limited to 7.

5% of AGI for taxpayers 65 years or older.

a. Nob. Noc.

Nod. Noe. Yesf. No

Problem 6-33Unearned Income of Minor Children and Certain Students (LO 6.10)Nikkie and Jean have two children, Richard (age 4) and Roberta (age 3). For purposes of the tax on a child's unearned income, Richard has net unearned income of $6,000 and Roberta has net unearned income of $4,000.

Assuming that their total tax on a child's unearned income for 2015 is $2,400, allocate the total parental tax to Richard and Roberta.a. Richard's parental tax $b. Roberta's parental tax $

a. $1,440b. $960Note: Many parents have found it beneficial from a tax-planning standpoint to give income-earning assets, such as stocks, bonds, bank certificates of deposit, and mutual funds, to their minor children.

However, tax law contains provisions that limit the benefit of shifting income to certain dependent children.