HRB Chapter 9 Test Questions with Correct Answers

HRB Chapter 9 Test Questions with Correct Answers A credit paid for qualifying education expenses paid for eligible students. One restriction is that the expenses must be for the first four years of higher education. The AOTC may be partially refundable. - Answer-American Opportunity Tax Credit (AOTC) A direct reduction of tax liability allowed for various purposes to taxpayers who meet the qualifications. Some credits are refundable; that is, the IRS will send the taxpayer a refund for any amount in excess of the tax liability. Some credits are nonrefundable; that is, they can only reduce tax liability to zero. Some credits may be carried to other tax years. - Answer-Credits A nonrefundable credit equal to 20% of the first $10,000 of qualified higher education tuition and fees paid during the year on behalf of the taxpayer, spouse, or dependents. - Answer-Lifetime learning credit A credit which cannot exceed the taxpayer's tax liability. - Answer-Nonrefundable credit A credit for which the IRS will send the taxpayer a refund for any amount in excess of the taxpayer's tax liability. - Answer-Refundable credit Determine eligibility for the American Opportunity Tax Credit and compute the credit. - Answer-Compare AOTC with Lifetime learning criteria Accurately prepare Form 8867, Paid Preparer's Due Diligence Checklist, for the American Opportunity Tax Credit. - Answer-Form 8867 Determine eligibility for the lifetime learning credit and compute the credit. - Answer-Lifetime learning criteria Compare/contrast the two education benefits to determine the most advantageous benefit for the taxpayer. - Answer-Compare AOTC with Lifetime learning criteria There are some key differences between these two credits, AOTC and LL. One important distinction is that the lifetime learning credit is nonrefundable, which means that it is available to reduce a taxpayer's tax liability, but not below zero. A portion of the AOTC, on the other hand, may be refundable to taxpayers (much like the Earned Income Tax Credit or the Additional Child Tax Credit). Thus, taxpayers who take the AOTC may lower their tax liability to zero and receive any additional AOTC amount in their refund. - Answer-Key differences between AOTC and LL