When must taxpayers use the Rate Schedules instead of the Tax Table to compute their income tax liability?

1. Using the Tax Rate Schedules. (Obj. 1) The IRS publishes Tax Rate Schedules and a Tax Table. When must taxpayers use the Rate Schedules instead of the Tax Table to compute their income tax liability?

Answer:

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The individual Individuals must use the Tax Rate Schedules to calculate their tax liability when:

• They file a short period return (less than 12 months) because of a change in their accounting period.
• They claim the foreign earned income exclusion.
• They file a Form 1040 with taxable income of $100,000 or more

 Comparison of Tax Tables and Tax Rate Schedules. (Obj. 1) Mark Long (unmarried) files his tax return using head of household filing status. His taxable income is $60,550.

1. What is Long’s tax liability using the Tax Table?

1. Compute Long’s tax liability using the Tax Rate Schedule. Explain any difference in your answers to Parts a. and b.

3. Tax Computation. (Obj. 1) Barbara Landerson, age 25, files as a single taxpayer. She is employed at a monthly salary of $2,150. She claims no dependents. Her employer withheld $1,600 from her wages for income taxes for 12 months’ of work. Compute of Landerson’s income tax due to or from the IRS.

4.Tax Computations. (Obj. 1) Compute the taxable income and income tax liability (before refunds and credits) for each of the following taxpayers. Each taxpayer uses the standard deduction.

400. A widowed taxpayer, age 30, has one dependent. She fi les as surviving spouse, and her AGI is $46,400.

590. An unmarried taxpayer, age 74, has no dependents and AGI of $19,590.

580. A taxpayer, age 40, is married but fi les a separate return from his spouse. The taxpayer is the noncustodial parent of his 8-year-old child. His wife has signed Form 8832 giving him the right to claim their daughter as a dependent. AGI is $130,580.

1. An unmarried taxpayer, age 72, is claimed as a dependent on her son’s return. Her AGI consists solely of $3,150 of taxable interest.

555. A married couple, ages 67 and 66, fi le a joint return. They claim one dependent. AGI is $161,555.

5. (Obj. 1) What is the difference between a tax credit and a tax deduction? If a taxpayer with a marginal tax rate of 15% has a $1,000 deduction, how much tax will she save? How much tax will she save with a $1,000 tax credit?

Answer:

 Child and Dependent Care Credit. (Obj. 2) Bud and Katie Milner fi le a joint return. During the year, they paid $11,000 to their nanny to look after their three children, ages 2, 9, and 11. Bud and Katie both work and earned $24,000 and $31,000, respectively. The wages are the Milners’ only source of income, and they have no deductions for AGI.

1. Compute the Milners’ child and dependent care credit.

1. Compute the Milners’ child and dependent care credit assuming Katie received a $4,000 nontaxable reimbursement from her employer’s dependent care plan.

7. Child and Dependent Care Credit. (Obj. 2) Todd and Jo Mendinpay their 17-year-old daughter, Erin, $5,000 to look after their 10-year-old son, TJ. The Mendins fi le a joint return and claim Erin and TJ as their dependents. The Mendlins’ AGI is $84,000. Both spouses work and each has wages in excess of $30,000.

1. Compute the Mendlins’ child and dependent care credit.

1. How, if at all, would your answer to Part a. change if Erin were 22-years-old, but still claimed

as a dependent on her parents’ return?

1. How, if at all, would your answer to Part a. change if the Mendins paid Todd’s mother to lookafter TJ?

8. Child and Dependent Care Credit. (Obj. 2) Denise and Marcus Anders claim their two children, ages 7 and 11, as dependents. During the year, Denise worked full time and earned $38,200. Marcus was a full-time student at the local college for 9 months during the year. The Anders paid $5,500 in qualified child care expenses to allow Denise to work and Marcus to attend college.

38710. Compute the Anders’s child and dependent care credit if their AGI is $38710.

1. How, if at all, would your answer to Part a. change if Marcus attended college full time for five months during the spring semester, but only took classes part-time in the fall?

9. Education Tax Credit. (Obj. 2) In 2015, Jean Loptien (single) paid $3,300 for her son’s tuition. Rob is a full-time student and a freshman this year at Northwest University.

800. Compute Loptein’s education tax credit if her AGI is $32,800. How much of his credit is refundable vs non-refundable.
801. Same as in Part a., except that Loptein’s AGI is $84,700.

10. Education Tax Credit. (Obj. 2) Curt and Kathy Norton paid $3,200 of tuition for their son, who attends college less than half-time. Of this amount, $1,500 was paid on December 28, 2014, for the Spring 2015 semester, and $1,700 was paid on August 4, 2015, for the Fall 2015 semester.

900. Compute the Norton’s 2015 education tax credit if AGI is $71,900.

816. Sme as in Part a., except that the Norton’s AGI is $118,816.

11. Education Tax Credit. (Obj. 2) In 2015, Paul and Karen Mitchell pay $12,000 for their daughter’stuition for the Spring and Fall semesters. Their daughter is a full-time graduate student. The Mitchells also paid $3,800 for their son’s tuition for the Spring and Fall semesters. In the Fall of 2015, their son began his sophomore year of college. The son attends college full-time.

600. Compute the Mitchells’ 2015 education tax credit if their AGI is $120,600.

360. Same as in Part a., except that the Mitchells’ AGI is $174,360.