Question 1

Which of the following is (are)AMT tax preference item(s)?
I.Tax-exempt interest from private activity bonds.
II.Percentage depletion in excess of basis.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

The answer of Which of the following is (are)AMT tax...

Question 2

With regard to the alternative minimum tax (AMT),
I.the AMT rate equals the highest individual income tax rate.
II.the AMT is separate and distinct from,yet parallel to,the regular income tax system.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

II is correct because the AMT operates as a parallel tax system to the regular income tax, designed to ensure that individuals and corporations with substantial income cannot avoid significant tax liability through deductions and credits. Statement I is incorrect because the AMT rates are not necessarily equal to the highest individual income tax rate; they are set at 26% or 28% for individuals.

Question 3

For the current year,Steven's tentative alternative minimum tax is $24,360.His regular tax liability is $23,000.Steven has $24,000 in taxes withheld from his salary.
I.Steven's alternative minimum tax is $1,360
II.Steven's tax liability is $23,000.
III.Steven will have to pay an additional $360 in tax.
IV.Steven's total tax liability is $24,360
A)Only statement I is correct.
B)Statements II and III are correct.
C)Statements I and IV are correct.
D)Statements I, III, and IV are correct.
E)None of the above are correct.

Accepted Answer

Statement I is correct since it gives the exact amount of Steven's tentative alternative minimum tax.

Statement II is also correct because it gives the amount of Steven's regular tax liability.

Statement III is correct because Steven's tentative alternative minimum tax of $24,360 is greater than the amount of taxes withheld from his salary, so he will have to pay an additional amount of $360 ($24,360 - $24,000).

Statement IV is correct because Steven's total tax liability is the sum of his regular tax liability and his tentative alternative minimum tax, which is $23,000 + $24,360 = $47,360. However, this is not one of the answer choices, so the best choice is D which includes all the correct statements.

Question 4

When calculating AMTI,individual taxpayers must add back the following:
I.Charitable contributions.
II.Qualified home mortgage interest.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

When calculating Alternative Minimum Taxable Income (AMTI), individual taxpayers do not add back charitable contributions or qualified home mortgage interest. These items are allowable deductions in the calculation of AMTI.

Question 5

Coffin Corporation (a domestic corporation)has $200,000 of U.S.source taxable income and $600,000 of foreign source taxable income from operations in Latvia.Latvia levied $67,000 in taxes on the foreign source income.U.S.taxes before credits are $280,000.The foreign tax credit limitation is
A)$ 67,000
B)$ 70,000
C)$159,750
D)$210,000
E)$280,000

Accepted Answer

The answer of Coffin Corporation (a domestic corporation)has $200,000 of...

Question 6

A U.S.formed multinational corporation
I.Can avoid the payment of tax on appreciated property by transferring the appreciated property to a controlled foreign corporation and then selling the property.
II.Is not subject to the transfer pricing rules that a foreign multinational must observe.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

The answer of A U.S.formed multinational corporation
I.Can avoid the payment...

Question 7

When calculating AMTI,individual taxpayers must add back the following:
I.The standard deduction amount.
II.Casualty and theft losses.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

The answer of When calculating AMTI,individual taxpayers must add back...

Question 8

Which of the following is (are)AMT tax preference item(s)?
I.Net operating loss deduction.
II.Exclusion of gain on qualified small business stock.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

The exclusion of gain on qualified small business stock is an AMT tax preference item, but the net operating loss deduction is not.

Question 9

Kelly purchases a warehouse for her sole proprietorship on January 5,2013 for $1,000,000.She claims MACRS depreciation of $25,641 for the year.The depreciation under the Alternative Depreciation System (ADS)is $25,000.What is the amount of Kelly's AMT adjustment for depreciation on the warehouse?
A)no adjustment is necessary
B)a positive $ 641
C)a negative $ 641
D)a positive $25,641
E)a negative $25,641

Accepted Answer

The AMT adjustment is the difference between the MACRS depreciation and the ADS depreciation. Here, it is $25,641 (MACRS) - $25,000 (ADS) = $641, which is a positive adjustment.

Question 10

Ortiz Corporation determined its AMTI to be $120,000 for 2013.If the regular income tax liability is $15,000,what is the amount of the alternative minimum tax for 2013?
A)$ - 0 -
B)$ 1,000
C)$ 9,000
D)$16,000
E)$24,000

Accepted Answer

The answer of Ortiz Corporation determined its AMTI to be...

Question 11

Grand Corporation has $100,000 of U.S.source taxable income and $200,000 of foreign source taxable income from operations in Poland.Poland levied $80,000 in taxes on the foreign source income.U.S.taxes before credits are $105,000.The overall foreign tax credit limitation is
A)$ 35,000
B)$ 53,334
C)$ 70,000
D)$ 80,000
E)$105,000

Accepted Answer

The answer of Grand Corporation has $100,000 of U.S.source taxable...

Question 12

Sylvester is a U.S.citizen living in Canada working as a computer programmer for Excel Designs,Inc.,a U.S.company.
I.Sylvester is a nonresident alien for U.S.tax purposes.
II.If Sylvester earns $10,000 for a consulting job in London,this income will be subject to U.S.tax.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

The answer of Sylvester is a U.S.citizen living in Canada...

Question 13

Cary is an employee with the Bayview Corporation.Bayview maintains a defined contribution plan for all its employees.Determine the maximum deductible contribution Bayview can make to the pension plan in each of the following situations:
a.Cary's salary is $90,000.
 
b.Cary's salary is $210,000.

Accepted Answer

The answer of Cary is an employee with the Bayview...

Question 14

For the current year,Salvador's regular tax liability is $17,000,and his tentative alternative minimum tax is $19,000.Salvador has $16,250 withheld from his salary.
I.Salvador has a tax due of $750.
II.Salvador's alternative minimum tax is $0.
III.Salvador has a tax due of $2,750.
IV.Salvador's total tax liability is $19,000
A)Statements I and II are correct.
B)Statements II and III are correct.
C)Statements I, II and IV are correct.
D)Statements III and IV are correct.
E)Statements II, III and IV are correct

Accepted Answer

Salvador's regular tax liability is $17,000, which means that is the minimum amount he owes in taxes. 
His tentative alternative minimum tax is $19,000, which means he may owe more if certain deductions or credits trigger the AMT. 
Salvador has $16,250 withheld from his salary, but this may not be enough to cover his total tax liability. 
Therefore, statement III is correct - he has a tax due of $2,750 ($19,000 - $16,250 withholding). 
Statement IV is incorrect because his total tax liability is at least $19,000 (regular tax liability plus tentative AMT), but could be higher depending on his specific tax situation. Statement I is also incorrect because it does not account for the difference between his withholding and total tax liability. 
Statement II is partially correct - his tentative AMT is not $0, but we do not know if he actually owes any AMT until we evaluate his deductions and credits.

Question 15

Gilberto is a Spanish citizen living in Canada working as a computer programmer for Excel Designs,Inc.,a U.S.company.
I.Gilberto is a nonresident alien for U.S.tax purposes.
II.If Gilberto earns $10,000 for a consulting job in Detroit,this income will be subject to U.S.tax.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

I. Gilberto is considered a nonresident alien for U.S. tax purposes because he is not a U.S. citizen, does not hold a green card, and does not meet the substantial presence test while living in Canada. II. The income Gilberto earns from work performed in the U.S. (like the consulting job in Detroit) is considered U.S. source income and is subject to U.S. tax.

Question 16

Which of the following credits can not be used to reduce the alternative minimum tax?
A)Adoption credit
B)Foreign tax credit
C)Child-and dependent-Care credit
D)Lifetime Learning credit
E)Research and experimental credit

Accepted Answer

The answer of Which of the following credits can not...

Question 17

Which of the following itemized deductions is not allowed for AMT purposes?
A)State income taxes.
B)Qualified housing interest.
C)Investment interest.
D)Interest on home equity loan where loan proceeds are used to improve the residence.
E)Charitable contributions.

Accepted Answer

State income taxes are not deductible for AMT purposes. This is because the AMT already includes a provision to take into account the state and local tax deductions, effectively eliminating the deduction for state income taxes. The other deductions listed are allowed for AMT purposes, subject to certain limitations and conditions.

Question 18

An exemption amount is allowed for the AMT calculation
I.as a deduction from tentative AMTI.II.to provide the average individual taxpayer with the opportunity to not be effected by the AMT provisions.
III.through legislative grace for taxpayers with moderate amounts of taxable income and without significant preferences and/or adjustments.
IV.In the amount of $51,900 for married taxpayers filing jointly.
A)Only statement I is correct.
B)Only statement IV is correct.
C)Statements II and III are correct.
D)Statements I, II, and III are correct.
E)Statements I, II, III, and IV are correct.

Accepted Answer

The answer of An exemption amount is allowed for the...

Question 19

When calculating AMTI,individual taxpayers must add back the following:
I.Miscellaneous itemized deductions subject to the 2% limitation.
II.Personal exemption amounts.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

The answer of When calculating AMTI,individual taxpayers must add back...

Question 20

Roland is an employee with the Belmont Corporation.Belmont maintains a money purchase plan for all its employees.Determine the maximum deductible contribution Belmont can make to the pension plan in each of the following situations:
a.Roland's salary is $100,000.
 
b.Roland's salary is $225,000.

Accepted Answer

The answer of Roland is an employee with the Belmont...

Quiz 15: Choice of Business Entity - Other Considerations

Which of the following is (are) AMT tax preference item(s) ? I.Tax-exempt interest from private activity bonds. II.Percentage depletion in excess of basis.

With regard to the alternative minimum tax (AMT) , I.the AMT rate equals the highest individual income tax rate. II.the AMT is separate and distinct from,yet parallel to,the regular income tax system.

When calculating AMTI,individual taxpayers must add back the following: I.Charitable contributions. II.Qualified home mortgage interest.

Coffin Corporation (a domestic corporation) has $200,000 of U.S.source taxable income and $600,000 of foreign source taxable income from operations in Latvia.Latvia levied $67,000 in taxes on the foreign source income.U.S.taxes before credits are $280,000.The foreign tax credit limitation is

A U.S.formed multinational corporation I.Can avoid the payment of tax on appreciated property by transferring the appreciated property to a controlled foreign corporation and then selling the property. II.Is not subject to the transfer pricing rules that a foreign multinational must observe.

When calculating AMTI,individual taxpayers must add back the following: I.The standard deduction amount. II.Casualty and theft losses.

Which of the following is (are) AMT tax preference item(s) ? I.Net operating loss deduction. II.Exclusion of gain on qualified small business stock.

Kelly purchases a warehouse for her sole proprietorship on January 5,2013 for $1,000,000.She claims MACRS depreciation of $25,641 for the year.The depreciation under the Alternative Depreciation System (ADS) is $25,000.What is the amount of Kelly's AMT adjustment for depreciation on the warehouse?

Ortiz Corporation determined its AMTI to be $120,000 for 2013.If the regular income tax liability is $15,000,what is the amount of the alternative minimum tax for 2013?

Grand Corporation has $100,000 of U.S.source taxable income and $200,000 of foreign source taxable income from operations in Poland.Poland levied $80,000 in taxes on the foreign source income.U.S.taxes before credits are $105,000.The overall foreign tax credit limitation is

Sylvester is a U.S.citizen living in Canada working as a computer programmer for Excel Designs,Inc.,a U.S.company. I.Sylvester is a nonresident alien for U.S.tax purposes. II.If Sylvester earns $10,000 for a consulting job in London,this income will be subject to U.S.tax.

Cary is an employee with the Bayview Corporation.Bayview maintains a defined contribution plan for all its employees.Determine the maximum deductible contribution Bayview can make to the pension plan in each of the following situations: a.Cary's salary is $90,000. b.Cary's salary is $210,000.

Gilberto is a Spanish citizen living in Canada working as a computer programmer for Excel Designs,Inc.,a U.S.company. I.Gilberto is a nonresident alien for U.S.tax purposes. II.If Gilberto earns $10,000 for a consulting job in Detroit,this income will be subject to U.S.tax.

Which of the following credits can not be used to reduce the alternative minimum tax?

Which of the following itemized deductions is not allowed for AMT purposes?

When calculating AMTI,individual taxpayers must add back the following: I.Miscellaneous itemized deductions subject to the 2% limitation. II.Personal exemption amounts.

Roland is an employee with the Belmont Corporation.Belmont maintains a money purchase plan for all its employees.Determine the maximum deductible contribution Belmont can make to the pension plan in each of the following situations: a.Roland's salary is $100,000. b.Roland's salary is $225,000.