Question 1

Due to the alternative minimum tax rate structure, a taxpayer with a large amount of long-term capital gains may be susceptible to the alternative minimum tax.

Accepted Answer

The alternative minimum tax (AMT) is calculated separately from regular tax and has its own rate structure. The AMT exemption amount is phased out for higher-income taxpayers, which means more of their income becomes subject to the AMT. The AMT rate for long-term capital gains is 28%, which is higher than the regular tax rate for most taxpayers with capital gains. Therefore, if a taxpayer has a large amount of long-term capital gains, they may end up paying more taxes under the AMT than they would under regular tax, making them susceptible to the alternative minimum tax.

Question 2

The kiddie tax does not apply to children over 24 years old at the end of the tax year.

Accepted Answer

The kiddie tax only applies to children who are under the age of 19 at the end of the tax year, or are full-time students under the age of 24 at the end of the tax year. Children over the age of 24 are no longer considered dependents for tax purposes and are not subject to the kiddie tax.

Question 3

Long-term capital gains, dividends, and taxable interest income are all taxed at preferential rates.

Accepted Answer

False

Question 4

For alternative minimum tax purposes, taxpayers are required to add back the regular tax standard deduction amount for their filing status whether or not they itemized deductions for regular tax purposes.

Accepted Answer

The answer of For alternative minimum tax purposes, taxpayers are...

Question 5

All else equal, a reduction in regular income tax rates would require more taxpayers to pay the alternative minimum tax.

Accepted Answer

The alternative minimum tax is calculated using a separate set of rules and exemptions, so a reduction in regular income tax rates could cause more taxpayers to reach AMT thresholds and trigger the tax.

Question 6

Taxpayers are not allowed to deduct the standard deduction for alternative minimum tax purposes.

Accepted Answer

Taxpayers who are subject to the alternative minimum tax (AMT) are not allowed to deduct the standard deduction. Instead, they must calculate their tax liability using a different set of rules and deductions.

Question 7

All capital gains are taxed at preferential rates.

Accepted Answer

Capital gains can be taxed at different rates depending on factors such as the asset's holding period and the taxpayer's income level. Long-term capital gains generally receive preferential tax rates, while short-term capital gains are taxed at ordinary income tax rates.

Question 8

Regular taxable income is the starting point for determining the alternative minimum tax.

Accepted Answer

This is true. The alternative minimum tax (AMT) is calculated based on an alternative set of rules that apply to certain types of income and deductions. However, it starts with regular taxable income and then adds back certain deductions and exemptions to determine the AMT base.

Question 9

If a married couple has one primary breadwinner, filing a joint return will likely result in a marriage penalty.

Accepted Answer

Filing jointly often results in lower taxes due to more favorable tax brackets and deductions, not a penalty, especially when one spouse earns significantly more than the other.

Question 10

The tax rate schedules are set up to tax lower levels of income at higher tax rates than higher levels of income.

Accepted Answer

The tax rate schedules are typically set up with graduated tax rates, in which higher levels of income are taxed at progressively higher rates. This means that higher levels of income are subject to higher tax rates than lower levels of income.

Question 11

For alternative minimum tax purposes, taxpayers are allowed to deduct state income taxes but are not allowed to deduct charitable contributions.

Accepted Answer

The statement is false. Taxpayers are allowed to deduct charitable contributions for alternative minimum tax purposes, but they cannot deduct state income taxes.

Question 12

The alternative minimum tax is the AMT base multiplied by the AMT rate.

Accepted Answer

The answer of The alternative minimum tax is the AMT...

Question 13

The AMT exemption amount is phased out for high-income taxpayers.

Accepted Answer

The AMT exemption amount is phased out for high-income taxpayers. The phase-out threshold for 2020 is $518,400 for individuals and $1,036,800 for married couples filing jointly.

Question 14

The alternative minimum tax system requires taxpayers to apply an alternative tax rate on the regular income tax base to determine the amount of the alternative minimum tax.

Accepted Answer

The alternative minimum tax (AMT) requires taxpayers to calculate their tax liability twice—once under the regular income tax system and once under the AMT system, which uses a broader definition of taxable income and then applies an alternative set of rates. The taxpayer pays the higher of the two calculated taxes.

Question 15

A marriage penalty occurs when a couple pays more taxes by filing a joint tax return than they would have paid had they filed married filing separately.

Accepted Answer

The answer of A marriage penalty occurs when a couple...

Question 16

Both the width (or range)of the tax brackets (the amount of income taxed at a particular rate)in the tax rate schedules and the range of the tax rates in the tax rate schedules (the difference between the lowest tax rate and the highest tax rate)vary by filing status.

Accepted Answer

The answer of Both the width (or range)of the tax...

Question 17

Tax rate schedules are provided for use by (relatively)higher-income taxpayers, while the tax tables are provided for use by (relatively)lower-income taxpayers.

Accepted Answer

Tax rate schedules are based on income levels and provide a range of tax rates applicable to a taxpayer's income, while tax tables provide a range of tax amounts based on income and filing status. Tax rate schedules are typically used by taxpayers with higher incomes, while tax tables are used by taxpayers with lower incomes.

Question 18

Long-term capital gains are taxed at the stated AMT rate for purposes of the alternative minimum tax.

Accepted Answer

Long-term capital gains are taxed at preferential rates under both the regular tax system and the Alternative Minimum Tax (AMT) system, not at the AMT's stated rates.

Question 19

If both spouses of a married couple earn roughly equivalent high levels of wages, the couple is likely to pay a marriage penalty due to the nature of the tax rate schedules.

Accepted Answer

The progressive tax rate structure can result in couples paying higher taxes when they file jointly, especially if their combined income pushes them into a higher tax bracket. This is known as the marriage penalty. When spouses earn similar wages, their combined income is more likely to fall into a higher tax bracket, resulting in a higher combined tax liability compared to if they filed separately.

Question 20

In certain circumstances a child with very little income may have at least a portion of their income taxed at the trust and estate tax rates.

Accepted Answer

This is true because if a child's income comes from a trust or estate, it may be subject to the trust and estate tax rates.

Quiz 8: Individual Income Tax Computation and Tax Credits