Deck 13: The Alternative Minimum Tax and Tax Credits

Question 1

None of the nonbusiness credits can be carried forward to offset regular taxes imposed in subsequent years.

Answer 1

False

Question 2

The earned-income credit is refundable.

Answer 2

True

Question 3

Taxpayers are allowed to use the double declining balance method of depreciation for both the regular tax and the AMT computations.

Answer 3

False

Question 4

The majority of the persons old enough to qualify for the credit for the elderly will not be able to claim the credit because they also receive social security benefits.

Question 5

The child care credit is always computed using the applicable percentage, which is 30% times the lesser of employment-related expenses or earned income.

Question 6

When a taxpayer takes the rehabilitation investment tax credit on qualified property, he or she is required to reduce the basis for depreciation of the asset by the amount of the credit claimed.The amount of basis reduction may be recaptured as ordinary income on a later sale of the property.

Question 7

There is no difference between a tax preference item and an AMT adjustment.

Question 8

Taxpayers with lower marginal rates benefit more from tax deductions than do those in higher brackets, while credits provide equal benefits to all taxpayers.

Question 9

Generally, business income tax credits reduce the AMT liability of individual taxpayers.

Question 10

The earned income credit is the same for a taxpayer with a six-year-old dependent and a taxpayer with a six-month-old dependent.

Question 11

The AMT applies only to taxpayers with a significant amount of tax preference items.

Question 12

The amount of the child care credit can vary depending on the number of children that are qualified dependents.

Question 13

Circulation and research expenditures are AMT adjustments for both corporate and individual taxpayers.

Question 14

If a taxpayer had previously taken an investment credit on qualified property, and later, before the end of its recovery period, gave it to her daughter, there will be a recapture of investment credit on the original property.

Question 15

If the taxpayer elects the ADS method of depreciation for regular tax purposes, he will also be allowed to use ADS for AMT purposes.

Question 16

An eligible small business can elect to take a non-refundable tax credit equal to the amount of the eligible disabled access expenditures exceeding $250 but not exceeding $10,250 for any taxable year.

Question 17

A married couple must file a joint return in order to claim a child care credit.

Question 18

The basis of the property must be reduced by 50 percent of the business energy credit claimed.

Question 19

The AMT applies only to individual taxpayers.

Question 20

A good method to generate tax credits for high-income taxpayers is to purchase qualifying buildings for rehabilitation investment credit, renovate, and take either 10 percent or 20 percent of the renovation cost as a credit, then immediately sell the building and roll the proceeds from the sale into another renovation.

Question 21

R bought new solar panels to be used to heat water for a production process on May 4, 2011 for $100,000 (the qualified investment is $100,000).Assume that she sold the solar panels on May 31, 2012 for $90,000.She claimed and used the maximum energy investment credit in 2011, did not take any § 179 expense, and used the MACRS tables to calculate the depreciation deduction.What is the amount of IC recapture tax that R must pay to the IRS in 2012?

A)$0-the IC is fully earned.
B)$2,000
C)$80,000
D)$8,000
E)$24,000

Question 22

L earned $200,000 on the LPGA.She has deductible self-employment away-from-home expenses of $100,000 and current year's circulation expenditures of $90,000.L uses the standard deduction.Determine the regular tax liability and the AMT liability.

A)$15,000, $2,100
B)$1,035, $2,100
C)$50, $5,553
D)$705, $8,400

Question 23

S receives incentive stock options (ISOs) as part of a compensation plan.The unrestricted option is for 100 shares at $100 per share.S exercises the option five years later when the FMV of the stock is $190 per share.S holds the stock for five more years and then sells it for $225 per share.In the year of exercise, S has reportable amounts for regular tax purposes and for AMT purposes, respectively, of

A)$19,000 and $0
B)$19,000 and $9,000
C)$0 and $9,000
D)$0 and $19,000
E)$0 and $0

Question 24

Which one of the following statements concerning the work opportunity tax credit is not true?

A)The employer's current wage expense must be reduced by the amount of the jobs tax credit elected for the current year.
B)The purpose of the credit is to encourage the hiring of persons from under-hired groups.
C)To qualify, an individual must obtain certification from a designated local agency.
D)The credit is available only for entry level jobs, or those paying less than $12,000 per year.

Question 25

Mr.and Mrs.T have one dependent and file a joint return which shows taxable income of $96,900, a regular tax liability of $16,475 and an AMT adjusted taxable income of $160,000.The T's also have a child care credit of $480 and a rehabilitation investment credit of $16,000.Determine the amount of the check (without regard to any possible penalties) that Mr.and Mrs.T must send to the IRS, and the amount of tax credits that can be carried back or forward.Assume Mr.and Mrs.T do not qualify for the child tax credit because the dependent is 18 years old and is incapacitated.

A)$22,413, $16,000
B)$16,739, $10,000
C)$14,070, $0
D)$9,245, $0
E)$29,400, $16,480

Question 26

Which one of the following does not describe the minimum tax credit?

A)Indefinite carryforward
B)Will never become a refundable credit
C)Offsets any future regular tax liability
D)Referred to as the adjusted net minimum tax

Question 27

M Corporation has gross receipts of $800,000 and an AMTI of $400,000 without regard to the ACE adjustment.M's adjusted current earnings are determined to be $600,000.M's regular tax liability is $60,000.M's AMTI is

A)$350,000
B)$550,000
C)$600,000
D)$110,000
E)$50,000

Question 28

R bought new solar panels to be used to heat water for a production process on May 4, 2011 for $100,000 (the qualified investment is $100,000).Assume that she sold the solar panels on May 31, 2012 for $90,000.She claimed and used the maximum energy investment credit in 2011, did not take any § 179 expense, and used the MACRS tables to calculate the depreciation deduction.(Assume the solar panels have a class life of nine years and R used the half-year convention for computing cost recovery deductions in 2011.) On the sale of her solar panels on May 31, 2012, what is the amount of gain that must be reported by R with respect to the solar panels?

A)$23,600
B)$10,000
C)$30,000
D)$70,000
E)$25,200

Question 29

The alternative minimum tax applies to which of the following?

A)Individuals and corporations
B)Corporations and estates
C)Trusts and corporations
D)Individuals and trusts
E)All of the above

Question 30

R bought new solar panels to be used to heat water for a production process on May 4, 2011 for $100,000 (the qualified investment is $100,000).Assume that she sold the solar panels on May 31, 2012 for $90,000.She claimed and used the maximum energy investment credit in 2011, did not take any §179 expense, and used the MACRS tables to calculate the depreciation deduction.What was the amount of energy investment credit that was taken in 2011?

A)$0-the energy investment credit was not allowed in 2011.
B)$6,000
C)$100,000
D)$10,000
E)$30,000

Question 31

Which of the following is deductible in computing alternative minimum taxable income?

A)State income taxes
B)Property taxes on a personal residence
C)Employee business expenses
D)Tax preparation expenses
E)None of the above

Question 32

Which one of the following is not a tax preference item used in computing the alternative minimum tax for an individual?

A)Tax-exempt income from a Colorado Water Board bond
B)Percentage depletion in excess of cost depletion on a silver mining property
C)Tax-exempt interest on specified private activity bonds in tax years after 2012
D)Exclusion of gain on the sale of certain qualified small business corporation stock in tax years after 2012
E)None of the above; all are preference items.

Question 33

Mr.W's tax liability for the year was $85,000 before claiming a general business tax credit.During the year, Mr.W qualified for $100,000 of general business credits.The general business credit allowed for the year is

A)$100,000
B)$85,000
C)$70,000
D)$55,000
E)$25,000

Question 34

Which of the following is not deductible in computing alternative minimum taxable income?

A)Casualty losses
B)Interest on a home equity loan used to purchase a new automobile
C)Charitable contributions
D)Medical expenses
E)All of the above are deductible.

Question 35

B purchased an old textile factory building in Chicago that had been certified as a historic structure.The purchase price was $1 million, and he spent $3 million this year renovating it.B's tax credit [without regard to possible limitations imposed by § 38(c)] and his basis in the building are

A)$60,000 credit; $4 million basis
B)$300,000 credit; $3,700,000 basis
C)$600,000 credit; $3,400,000 basis
D)$600,000 credit; $400,000 basis

Question 36

W, a widower, maintains a household for himself and two preschool children, for whom he is entitled to a dependency deduction.He has adjusted gross income of $25,000: $20,000 wages and $5,000 interest.W paid employment-related expenses of $4,000 for household services within his home, and paid $1,200 child care expenses at a nursery school.His child care credit for the year is

A)$1,560
B)$1,144
C)$1,200
D)$1,440
E)None of the above

Question 37

BobCo incurred $60,000 of qualifying research and experimentation expenses in 20x5.It had gross receipts of $420,000.Prior years' research expenses and gross receipts were $$\begin{array} { l l l } \text { Research}& \text {Expenses } & \text { Gross Receipts } \\1986 & \$ 33,000&\$ 370,000 \\1987 & 25,000&250,000 \\1988 & 32,000&380,000 \\2000 & 33,000&410,000 \\2001 & 30,000&410,000 \\2002 & 25,000&400,000 \\2003 & 32,000&380,000 \\2004 & 30,000&410,000\end{array}$$ BobCo's tax liability before credits was $25,000.Its research credit for 2005 is:

A)$25,000
B)$10,000
C)$20,000
D)$8,000
E)$4,800

Question 38

L earned $200,000 on the LPGA.She has deductible self-employment away-from-home expenses of $100,000 and current year's circulation expenditures of $90,000.L uses the standard deduction.Determine L's regular taxable income, and her alternative minimum taxable income.

A)$10,000, $10,000
B)$6,900, $10,000
C)$95,900, $100,000
D)$500, $70,000

Question 39

T is married and files a joint return.The Ts have an AMTI of $350,000 and do not have a minimum tax foreign tax credit.The tentative minimum tax liability is

A)$94,500
B)$79,300
C)$85,400
D)$84,000

Question 40

S receives incentive stock options (ISOs) as part of a compensation plan.The unrestricted option is for 100 shares at $100 per share.S exercises the option five years later when the FMV of the stock is $190 per share.S holds the stock for five more years and then sells it for $225 per share.Regarding the sale by S of the ISO stock, S will have a regular tax gain and AMT gain, respectively, of

A)$2,500 and $12,500
B)$22,500 and $3,500
C)$13,590 and $12,500
D)$12,500 and $13,590
E)$12,500 and $3,500

Question 41

D is a single dad and has modified AGI of $39,000.This year D's son begins his junior year of college as a half-time student at Arapahoe College.On September 1, D pays $2,000 in qualified tuition for his son's fall semester.The amount of tax credit available to D is

A)$2,000
B)$1,500
C)$500
D)$0
E)$1,000

Question 42

M is a single mom raising one child at home, age 16.M may claim a dependency exemption for her child.This year M earned $70,000 as salary and had investment income of $12,500.The allowable child tax credit for M is

A)$400
B)$150
C)$600
D)$250
E)$500

Question 43

H and W are married and have three children.At the close of 20x6, the children, X, Y, and Z, were ages 12, 16 and 18 respectively.H and W claim a dependency exemption for each of the children.This year H and W reported adjusted gross income of $104,200.The allowable child tax credit for H and W is

A)$1,500
B)$2,000
C)$400
D)$550
E)$0

Question 44

J, a sole proprietor, had gross receipts of $500,000 last year and incurred $15,000 of eligible access expenditures this year.J's disabled access credit for this year is

A)$7,500
B)$5,000
C)$0
D)$1,500
E)$3,000

Question 45

C, a single mother, has modified AGI of $42,000.In 2011, C's daughter, D, begins studying for her bachelor's degree as a full-time student at County University.On September 1, C pays $3,000 in qualified tuition for D's first semester.The amount of allowable American Opportunity Tax Credit scholarship credit allowed to C is

A)$2,500
B)$1,800
C)$1,350
D)$400
E)$0

Question 46

Which one of the following is not an example of a refundable credit?

A)The credit for federal income tax withheld on salary
B)Earned income credit
C)Credit for the elderly, or permanently and totally disabled
D)Quarterly estimated tax payments
E)Credit for Federal tax on gasoline and special fuels

Question 47

H and W are married with three children.At the close of 20x6, the children, X, Y, and Z, were ages 2, 6, and 8, respectively.H and W claim a dependency exemption for each of the children.This year H and W reported adjusted gross income of $115,500.The allowable child tax credit for H and W is

A)$2,700
B)$0
C)$1,200
D)$1,000
E)$900

Question 48

When D leaves home to go to her job, she pays the neighbor to watch over her 89-year-old mother, M.The latter has lived with D for five years and has only $1,000 includible gross income each year.If D has no taxable income this year and has a $300 dependent care credit, she may

A)Obtain a $300 tax refund this year for the credit
B)Carry the $300 credit back three years and then forward 15 years
C)Carry the $300 credit forward indefinitely
D)Not use the $300 credit for any purpose

Question 49

H and W are married and have twins that are attending State University as freshmen this year.State University is on the semester system and charges $1,000 tuition per semester.H and W pay State University $2,000 this year.H and W have adjusted gross income of $170,000.The allowable American Opportunity Tax Credit for H and W is

A)$2,000
B)$400
C)$600
D)$1,000
E)$0