Question & Answer

In 2024, Lisa and Fred, a married couple, have taxable income of $400,000.  If they were to file separate tax returns, Lisa would have reported taxable income of $225,000 and Fred would have reported taxable income of $175,000.  What is the couple’s marriage penalty or benefit?

Whitney received $75,000 of taxable income in 2024.  All of the income was salary from her employer.  What is her income tax liability in each of the following alternative situations?

Describe the consequences for failure to file a tax return and late payment of taxes owed.

What is the due date for individual tax returns?  What extensions are available?

What determines if a taxpayer is required to file a tax return?  If a taxpayer is not required to file a tax return, does this mean that the taxpayer should not file a tax return?

] Describe how the underpayment penalty is calculated.

What are the consequences of a taxpayer underpaying their tax liability throughout the year?  Explain the safe-harbor provisions that may apply in this situation.  

] Describe the two methods that taxpayers use to prepay their taxes.

Describe the order in which different types of tax credits are applied to reduce a taxpayer’s tax liability.

When a U.S. taxpayer pays income taxes to a foreign government, what options does the taxpayer have when determining how to treat the expenditure on their U.S. individual income tax return?

How are business credits similar to personal credits?  How are they dissimilar? 

Under what circumstances can a college student qualify for the earned income credit?

Why is the earned income credit referred to as a negative income tax?

Jennie’s grandmother paid her tuition this fall to State University (an eligible educational institution).  Jennie is claimed as a dependent by her parents, but she also files her own tax return.  Can Jennie claim an education credit for the tuition paid by her grandmother?  What difference would it make, if any, if Jennie did not qualify as a dependent of her parents (or anyone else)? 

Compare and contrast the lifetime learning credit with the American opportunity tax credit.

The amount of the child and dependent care credit is based on the amount of the taxpayer’s expenditures to provide care for one or more qualifying persons.  Who is considered to be a qualifying person for this purpose?

Diane has a job working three-quarter time.  She hired a relative to take care of her two small children so Diane could work.  Do Diane’s child care payments to her relative qualify for the child and dependent care credit in 2024?  Explain.

Is the child tax credit a refundable or nonrefundable credit?  Explain.

What is the difference between a refundable and nonrefundable tax credit?

Explain why there are such a large number and variety of tax credits.

What are the three types of tax credits? Explain why it is important to distinguish between the different types of tax credits.

How are tax credits and tax deductions similar?  How are they dissimilar?

Mike wanted to work for a CPA firm, but he also wanted to work on his parents’ farm in Montana.  Because the CPA firm wanted Mike to be happy, it offered to let him work for the firm as an independent contractor during the fall and winter and return to Montana to work for his parents during the spring and summer.  He was very excited to hear that the firm was also going to give him a 5 percent higher “salary” for the six months he would be working for the firm over what he would have made over the same six-month period if he worked full time as an employee (i.e., an increase from $30,000 to $31,500).  Should Mike be excited about his 5 percent raise?  Why or why not?  What counteroffer could Mike reasonably suggest?

How do the tax consequences of being an employee differ from those of being self-employed?

What are the primary factors to consider when deciding whether a worker should be considered an employee or a self-employed taxpayer for tax purposes?