Question

*Please clearly label what answer is for each question.*

a. Trey claims a dependency exemption for both of his daughters, ages 10 and 12, at year-end. Trey files a joint return with his wife.

What amount of child credit will Trey be able to claim for his daughters. His AGI is $123,000.

b. In 2017, Elaine paid $2,760 of tuition and $1,060 for books for her dependent son to attend State University this past fall as a freshman. Elaine files a joint return with her husband.

What is the maximum American opportunity credit that Elaine can claim for the tuition payment and books. (Round your intermediate calculations to two decimal places and final answer to the nearest whole dollar amount. Leave no answer blank. Enter zero if applicable.)

Elaine’s AGI is $92,750.

c. This year Lloyd, a single taxpayer, estimates that his tax liability will be $11,950. Last year, his total tax liability was $16,300.

He estimates that his tax withholding from his employer will be $9,035.

c-1. How much does Lloyd need to increase his withholding by (for the year), in order to avoid the underpayment penalty?

c-2. Assuming Lloyd does not make any additional payments, what is the amount of his underpayment penalty? Assume the federal short-term rate is 5 percent. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)

Answer 1

a. Trey can claim $4,050 per child as dependency exemption
Amount of child credit = $4,050 x 2 = $8,100
b. Elaine can claim
100% on first $2000	$2,000
25% on expense in excess of $2000 i.e. $1,820	$455
Maximum American Opportunity credit claimed	$2,455
Toal expenses = 2760+1060 = 3820
c-1. Lloyd need to increase his withholding by $1,925 to avoid the underpayment penalty as
the penalty is waived if the underpayment is for an amount less than $1000.
Total amount due	$11,950
Tax withheld	$9,035
Underpayed tax	$2,915
C-2
Total amount due	$11,950
Tax withheld	$9,035
Underpayment	$2,915
Penalty @ 5%	$145.75