Question 1

Miriam, who is a head of household and age 36, provides you with the following information from her financial records for 2012.  Calculate her AMTI for 2012.
A)$0.
B)$171,300.
C)$195,925.
D)$218,000.
E)None of the above.

Accepted Answer

The answer of Miriam, who is a head of household...

Question 2

For regular income tax purposes, Yolanda, who is single, is in the 35% tax bracket.Her AMT base is $220,000.Her tentative AMT is:
A)$57,200.
B)$58,100.
C)$61,600.
D)$77,000.
E)None of the above.

Accepted Answer

Tentative AMT = AMT base × AMT rate
AMT rate for single filers with an AMT base between $194,800 and $414,700 is 26%. Therefore:
Tentative AMT = $220,000 × 26% = $57,200. 
So the answer is choice B.

Question 3

Interest income on private activity bonds issued before 2009, reduced by expenses incurred in carrying the bonds, is a tax preference item that is included in computing AMTI.

Accepted Answer

According to the Internal Revenue Service (IRS), interest income on private activity bonds issued before 2009 is a tax preference item that is included in computing Alternative Minimum Taxable Income (AMTI). This means that even if the taxpayer would not otherwise owe AMT, they may be subject to it if they have significant interest income from these bonds. The expenses incurred in carrying the bonds can be deducted from the interest income, but the remaining amount is included in the AMTI calculation.

Question 4

Ashly is able to reduce her regular income tax liability from $47,000 to $43,500 as the result of the alternative tax on net capital gain.Ashly's tentative AMT is $51,000.
A)Ashly's tax liability is reduced by $3,500 as the result of the alternative tax calculation on net capital gain.
B)Ashly's AMT is increased by $3,500 as the result of the alternative tax calculation on net capital gain.
C)Ashly's tax liability is $43,500.
D)Ashly's tax liability is $47,000.
E)None of the above.

Accepted Answer

The alternative tax on net capital gain reduced Ashly's regular income tax liability by $3,500 ($47,000 - $43,500). This means that the reduction in tax liability is equal to the amount of the alternative tax on net capital gain. Therefore, Choice A is correct. Choices B, C, D, and E are all incorrect because they either provide incorrect information or do not fully answer the question.

Question 5

Jackson sells qualifying small business stock for $125,000 (adjusted basis of $105,000) in 2012. In calculating gross income for regular income tax purposes, he excludes all of his realized gain of $20,000.The $20,000 exclusion is a tax preference in calculating Jackson's AMTI.

Accepted Answer

The $20,000 exclusion in calculating Jackson's gross income for regular income tax purposes is not a tax preference in calculating his AMTI. Tax preferences are items that Congress has deemed to be beneficial and therefore subject to an alternative minimum tax to ensure that taxpayers with certain types of income are not able to avoid paying taxes.

Question 6

Prior to the effect of the tax credits, Justin's regular income tax liability is $200,000 and his tentative AMT is $195,000.Justin has the following credits:  Calculate Justin's tax liability after credits.
A)$190,000.
B)$194,000.
C)$195,000.
D)$200,000.
E)None of the above.

Accepted Answer

The tax liability after credits can be calculated as follows:

Regular tax liability ($200,000) - Credits ($4,000) = $196,000

Since tentative AMT is less than regular tax liability, AMT is not triggered and the tax liability is $196,000, which is closest to option B ($194,000). Therefore, B is the best choice.

Question 7

Vicki owns and operates a news agency (as a sole proprietorship). During 2012, she incurred expenses of $24,000 to increase circulation of newspapers and magazines that her agency distributes. For regular income tax purposes, she elected to expense the $24,000 in 2012. In addition, Vicki incurred $15,000 in circulation expenditures in 2013 and again elected expense treatment.What AMT adjustments will be required in 2012 and 2013 as a result of the circulation expenditures?
A)$16,000 positive in 2012, $2,000 positive in 2013.
B)$16,000 negative in 2012, $2,000 positive in 2013.
C)$16,000 negative in 2012, $10,000 positive in 2013.
D)$16,000 positive in 2012, $10,000 positive in 2013.
E)None of the above.

Accepted Answer

For AMT purposes, the circulation expenditures are considered start-up costs and must be capitalized and amortized over 180 months. The adjustment in 2012 will be $24,000 - ($5,000 × 2) = $14,000 positive adjustment. The adjustment in 2013 will be ($5,000 × 2) - $15,000 = $5,000 positive adjustment. Therefore, the correct answer is (A), $16,000 positive in 2012, $2,000 positive in 2013.

Question 8

If the taxpayer elects to capitalize intangible drilling costs and to amortize them over a 10-year period for regular income tax purposes, there is no adjustment or preference for AMT purposes.

Accepted Answer

The answer of If the taxpayer elects to capitalize intangible...

Question 9

Which of the following statements is correct?
A)The AMT calculated under the direct and indirect methods produces the same amount.
B)The AMT calculated under the direct and the indirect methods produces different amounts.
C)The tax forms use the direct method to calculate the AMT.
D)The tax law uses the direct method to calculate the AMT.
E)None of the above is correct.

Accepted Answer

The answer of Which of the following statements is correct?
A)The...

Question 10

The AMT does not apply to qualifying "small corporations."

Accepted Answer

According to the IRS, the AMT does not apply to small corporations whose average annual gross receipts for the three prior tax years are no more than $5 million.

Question 11

C corporations are subject to a positive AMT adjustment equal to 75% of the excess of ACE over AMTI before the ACE adjustment.

Accepted Answer

This statement is true. C corporations are subject to an alternative minimum tax (AMT), and one component of the AMT calculation is the positive adjustment for the excess of the corporation's adjusted current earnings (ACE) over its alternative minimum taxable income (AMTI) before the ACE adjustment. This adjustment is calculated as 75% of the excess.

Question 12

Certain adjustments apply in calculating the corporate AMT that do not apply in calculating the noncorporate AMT and certain adjustments apply in calculating the noncorporate AMT that do not apply in calculating the corporate AMT.

Accepted Answer

This statement is true. Certain adjustments, such as adjusting for tax-exempt interest and the difference between book and tax depreciation, apply only to the corporate AMT, while adjustments such as the deduction for state and local taxes and the standard deduction for individuals apply only to the noncorporate AMT.

Question 13

For individual taxpayers, the AMT credit is applicable for the AMT that results from timing differences, but it is not available for the AMT that results from the adjustment for itemized deductions or exclusion preferences.

Accepted Answer

The AMT credit can only be applied towards AMT resulting from timing differences and not towards AMT resulting from the adjustment for itemized deductions or exclusion preferences.

Question 14

Which of the following statements is incorrect?
A)If the tentative minimum tax exceeds the regular income tax liability, the AMT is $0.
B)The exemption amount increases as AMTI increases.
C)The AMT tax rate for an individual taxpayer can be as high as 26%.
D)Only a.and b.are incorrect.
E)a., b., and c.are incorrect.

Accepted Answer

All the statements are correct. The tentative minimum tax is used to determine if a taxpayer owes AMT. The exemption amount for AMT increases as AMTI increases, and the AMT tax rate for an individual taxpayer can be as high as 26%.

Question 15

All of a C corporation's AMT is available for carryover as a minimum tax credit regardless of whether the adjustments and preferences originate from timing differences or AMT exclusions.

Accepted Answer

All of a C corporation's AMT, regardless of its origin, can be carried over as a minimum tax credit.

Question 16

Kay had percentage depletion of $119,000 for the current year for regular income tax purposes.Cost depletion was $60,000.Her basis in the property was $90,000 at the beginning of the current year.Kay must treat the percentage depletion deducted in excess of cost depletion, or $59,000, as a tax preference in computing AMTI.

Accepted Answer

The answer of Kay had percentage depletion of $119,000 for...

Question 17

Meg, who is single and age 36, provides you with the following information from her financial records.  Calculate her AMT exemption for 2012.
A)$0.
B)$23,450.
C)$14,075.
D)$48,450.
E)None of the above.

Accepted Answer

Meg's AMT exemption for 2012 is $50,600, which is reduced by 25% of the amount by which her AMT income exceeds $112,500. Meg's AMT income is calculated as follows:
Regular taxable income: $60,000
Add back: State and local income taxes: $6,000
Add back: Property taxes: $4,500
Add back: Personal exemptions: $11,388
Add back: Standard deduction: $5,950
Add back: Miscellaneous itemized deductions: $2,500
Total adjustments: $30,338
AMT income: $90,338
Since $90,338 exceeds $112,500, Meg's AMT exemption is reduced by 25% of the excess, which is $19,209.50. Therefore, Meg's AMT exemption for 2012 is $50,600 - $19,209.50 = $31,390.50. However, since Meg is not married and has no dependents, her exemption is further reduced to $14,075.

Question 18

Which of the following statements is correct?
A)If the tentative AMT is $10,000 and the regular income tax liability is $12,000, the AMT is $2,000.
B)If the tentative AMT is $12,000 and the regular income tax liability is $10,000, the AMT is $12,000.
C)If the tentative AMT is $10,000 and the regular income tax liability is $12,000, the AMT is a negative $2,000.
D)If the tentative AMT is $12,000, and the regular income tax liability is $10,000, the AMT is $2,000.
E)None of the above.

Accepted Answer

The correct formula for calculating AMT is to compare the tentative minimum tax (TMT) to the regular income tax liability and take the difference. If the TMT is greater than the regular tax liability, the difference is the AMT. If the regular tax liability is greater than the TMT, there is no AMT. In option D, the TMT is $12,000, which is greater than the regular tax liability of $10,000, so the AMT is $2,000.

Question 19

The C corporation AMT rate can be higher than the individual AMT rates.

Accepted Answer

The answer of The C corporation AMT rate can be...

Question 20

The AMT exemption for a C corporation is $40,000 reduced by 35% of the amount by which AMTI exceeds $150,000.

Accepted Answer

The AMT exemption for a C corporation used to be calculated this way, but it was changed with the Tax Cuts and Jobs Act of 2017. Currently, C corporations no longer have an AMT exemption, and they are subject to a flat 21% AMT rate on any AMTI above $1 million.

Quiz 15: Alternative Minimum Tax

Miriam, who is a head of household and age 36, provides you with the following information from her financial records for 2012. Calculate her AMTI for 2012.

For regular income tax purposes, Yolanda, who is single, is in the 35% tax bracket.Her AMT base is $220,000.Her tentative AMT is:

Interest income on private activity bonds issued before 2009, reduced by expenses incurred in carrying the bonds, is a tax preference item that is included in computing AMTI.

Ashly is able to reduce her regular income tax liability from $47,000 to $43,500 as the result of the alternative tax on net capital gain.Ashly's tentative AMT is $51,000.