For 2019, George has regular tax liability of $8,000 and TMT of $9,000. He also has...

For 2019, George has regular tax liability of $8,000 and TMT of $9,000. He also has the following credits:

•Child tax credit: $1,000

•American opportunity education credit: $1,000

What amount of tax will George pay for 2019?

A. $7,000

B. $7,800

C. $8,000

D. $9,000

Solutions

Expert Solution

Correct Answer: Option A) $ 7000

Reasoning :

First, deciding pre-credit tax liability for geroge,

If the taxpayer has higher TMT which stands for tentative minimum tax than the regular tax liability, then he/she must pay the regular tax + the amount by which TMT exceeds the regular tax.

Thus, Pre credit benefit tax liability = 8000 + 1000 (9000-8000) = $ 9000

Both, Child tax credit and American opportunity education credit are the benefits provided by the government which helps reduce the total tax paid. Needless, to say both these benefits come with its own conditions and prerequisites.

Now, the amount of tax George must pay = Pre-credit benefit tax liability - Child tax credit - American opportunity education credit

Substituting the value,

The amount of tax George must pay = 9000 - 1000 - 1000 = $ 7000

Therefore, the amount of tax George must pay is $ 7000

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