16. LO. 3, 4 Discuss the rationale underlying the enactment of the following tax credits.
a. Rehabilitation expenditures credit.
b. Research activities credit.
c. Low-income housing credit.
d. Earned income credit.
e. Foreign tax credit.
25. LO. 3, 7 Paul Chaing (4522 Fargo Street, Geneva, IL 60134) acquires a qualifying historic structure for $350,000 (excluding the cost of the land) and plans to substantially rehabilitate the structure. He is planning to spend either $320,000 or $380,000 on rehabilitation expenditures. Write a letter to Paul and a memo for the tax research files explaining the following for the two alternative expenditures.
a. The computation that determines the rehabilitation expenditures tax credit available.
b. The effect of the credit on Paul’s adjusted basis in the property.
c. The cash-flow difference as a result of the tax consequences related to his expenditure choice.
27. LO.3 In March 2014, Sparrow Corporation hired three individuals – Austin, Adam, and Angela – all of whom are certified as long-term family assistance recipients. Each of these individuals earned $11,000 during 2014. Only Adam continued to work for Sparrow in 2015, and he earned $13,500 then.
In March 2015, Sparrow hired Sam, who also is certified as a long-term family assistance recipient. During 2015, Sam earned $12,000.
- Compute Sparrow’s work opportunity credit for 2014 and 2015.
- If Sparrow pays total wages to it employees of $325,000 in 2104 and $342,000 in 2015, what is the entity’s wage deduction for those years?
33. LO.4, 7 Cooper National is incorporated in Alabama. 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.
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 lasted 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 as a combined AGI with her husband Morrie of $110,000.
- Calculate Bernadette’s education tax credit.
- In her capacity as president of the local Rotary chapter, Bernadette has asked you to present a 20- to 30-minute speech outline 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 tile for your presentation is “How Can the Tax Law Help Pay for College and Continuing Professional Education?”
55. LO.3, 8, 11 Bonnie and Jake (ages 35 and 36, respectively) are married with no dependents and live in Montana (not a community property state). Because Jake has large medical expenses, they seek your advice about filling separately to save taxes. Their income and expenses for 2014 are as follow:
Bonnie’s salary $42,000
Jake’s salary 25,000
Interest income (joint) 1,500
Rental loss from actively managed rental property (23,000)
Jake’s unreimbursed medical expenses 8,500
All other itemized deduction:*
*None subject to limitations
Determine whether Bonnie and Jake should file jointly or separately for 2014