Federal Income Taxation HW#10

Federal Income taxation HW#10
Name Course Instructor Date
Please answer the following questions at the end of Chapter 12:1, 4, 6, 8, 14, 18, & 26
1. Would an individual taxpayer receive greater benefit from deducting an expense or taking a credit equal to 25% of the expense? How would your response change if the item would only be deductible from AGI?
On the AGI deductibility issue, there is a refundable tax credit when the credit exceeds the amount of tax owed, with the excess being refunded to the taxpayer. A taxpayer whose marginal tax rate is less than 25% ought to take a credit of 25%. However, if the marginal rate is greater than 25%, a taxpayer would benefit more from taking a deduction. On the other hand, when the item is deductible from AGI, the taxpayer would benefit if they itemized the deductions.
4. Is the earned income credit a form of negative income tax? Why or why not?
Yes, since e it is a refundable credit even for taxpayers who do not have any income tax liability. When the exemptions and deductions exceed the AGI, it is possible to have negative taxable income.
6. Mark and Lisa are approaching an exciting time in their lives as their oldest son, Austin, graduates from high school and moves on to college. What are some of the tax issues that Mark and Lisa should consider as they think about paying for Austin's college education?
This is a tax issue for college education payments. One can claim deductions of up to $4,000 on the 2020 taxes. There is also a need to consider American Opportunity Tax Credit AOTC) qualified education expenses and the Lifetime Learning Tax Credit (LLC) for qualified tuition and related expenses paid for eligible students in eligible educational institutions.
8. Describe the exposure (i.e., wage base and tax rate) of a self-employed individual to the self-employment tax for 2020
The self-employment tax rate is 15.3% of the first $137,700 (wage base), where Social Security represents 12.4% of this tax and Medicare represents 2.9%.
14. Santiago and Amy are married and file a joint tax return. They have three children, ages 12, 14, and 18. All parties are U.S. citizens. Their AGI is $140,000.
Determine any available child tax credit and dependent tax credit.
"The chil...