Question 1

A taxpayer is paying alternative minimum tax this year. The AMT is primarily due to timing differences, resulting in the creation of a minimum tax credit. The taxpayer will apply the minimum tax credit

Accepted Answer

The minimum tax credit can be used to offset regular tax in future years when the regular tax exceeds the tentative minimum tax, allowing the taxpayer to recover some of the AMT paid in prior years.

Question 2

All of the following are allowable deductions under the alternative minimum tax except

Accepted Answer

State income taxes are not deductible under the alternative minimum tax (AMT) rules, whereas the other options listed are allowable deductions.

Question 3

One- half of the self- employment tax imposed is allowed as a for AGI deduction.

Accepted Answer

This statement is true. One-half of the self-employment tax imposed is allowed as a deduction for AGI (Adjusted Gross Income) on the taxpayer's tax return. This deduction is intended to provide parity between self-employed individuals who pay both the employer and employee share of Social Security and Medicare taxes, and employees who have their Social Security and Medicare taxes withheld from their paychecks.

Question 4

A self- employed individual has earnings from his business of $300,000 in 2018. For the earnings in excess of
$128,400, he will only have to pay the 2.9% Medicare Tax.

Accepted Answer

The answer of A self- employed individual has earnings from...

Question 5

When a husband and wife file a joint return and both have self- employment income, the self- employment tax must be computed separately.

Accepted Answer

The answer of When a husband and wife file a...

Question 6

If an individual is an employee and also has self- employment income, the maximum tax base for computing self- employment tax is reduced by the wages that are subject to the FICA tax.

Accepted Answer

This is true. The self-employment tax is calculated on net business income, but the maximum amount on which the Social Security portion of the tax is assessed is reduced by any wages subject to FICA tax. This reduction does not apply to the Medicare portion of the self-employment tax.

Question 7

Suzanne, a single taxpayer, has the following tax information for the current year. • Charitable contribution of real property with a FMV of $25,000 (adjusted basis $20,000) for which a $25,000 d was taken for regular tax.
• Research and experimental expenses of $40,000 deducted in full for regular tax.
Suzanne's total tax preferences and adjustments equals

Accepted Answer

The answer of Suzanne, a single taxpayer, has the following...

Question 8

Lavonne, a single taxpayer, has a regular tax liability of $11,340 on taxable income of $70,000. She also has tax preferences of $35,000 and positive adjustments attributable to limitations on itemized deductions of $10,000. Lavonne's alternative minimum tax for 2018 is

Accepted Answer

To calculate the AMT, first determine the AMTI by adding tax preferences and adjustments to taxable income: $70,000 + $35,000 + $10,000 = $115,000. Subtract the AMT exemption for 2018 ($70,300 for single filers) to get $44,700. The AMT rate is 26% for income up to $191,500, so $44,700 * 26% = $11,622. Subtract the regular tax liability: $11,622 - $11,340 = $282.

Question 9

Jorge has $150,000 of self- employment earnings from a sole proprietorship. Jorge's self- employment tax (rounded) for 2018 is

Accepted Answer

The self-employment tax rate is 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare. For 2018, the Social Security wage base limit is $128,400. Therefore, Jorge pays 12.4% on $128,400 and 2.9% on the full $150,000. The calculation is: (12.4% of $128,400) + (2.9% of $150,000) = $19,939.

Question 10

John has $55,000 of self- employment earnings from a sole proprietorship. John is also employed part- time by a major corporation and is paid $25,000. John's self- employment tax for 2018 is

Accepted Answer

John's self-employment tax is calculated on his self-employment earnings of $55,000. The self-employment tax rate is 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare. The Social Security portion is only applied to the first $128,400 of combined wages and self-employment income for 2018. Therefore, the self-employment tax is $55,000 * 15.3% = $8,415. However, only half of this amount is deductible, which is $4,207.50, but the question asks for the total self-employment tax, which is $8,415.

Question 11

A wage cap does not exist for which of the following self- employment taxes?

Accepted Answer

Medicare tax does not have a wage cap, meaning all earnings are subject to this tax, unlike Social Security tax which has a wage cap.

Question 12

If an individual is classified as an employee, the employer is required to withhold the employee's share of the FICA tax and to provide a matching amount.

Accepted Answer

This is true. FICA stands for Federal Insurance Contributions Act, and it includes both Social Security tax and Medicare tax. Employers are required to withhold the employee's portion of FICA from their paychecks and also contribute a matching amount as the employer's share.

Question 13

If an individual is liable for self- employment tax, a portion of the self- employment tax is

Accepted Answer

A portion of the self-employment tax is deductible as a for AGI deduction, specifically the employer-equivalent portion.

Question 14

Annie, a single taxpayer, has taxable income of $600,000 and a regular tax liability of $187,690 in 2018. She also has positive AMT adjustments of $100,000 due to incentive stock options and limitations on itemized deductions and tax preferences of $25,000. What is Annie's AMT for 2018?

Accepted Answer

The answer of Annie, a single taxpayer, has taxable income...

Question 15

In calculating a taxpayer's AMT, adjustments for timing differences will be made for all of the following assets except for

Accepted Answer

The answer of In calculating a taxpayer's AMT, adjustments for...

Question 16

Rex has the following AMT adjustment factors: - Depreciation of real property acquired in 1996 using MACRS is $22,000 while depreciation for AMT purposes is $15,000.
- R&E expenditures amounting to $60,000 are expensed.
The net adjustment is

Accepted Answer

The answer of Rex has the following AMT adjustment factors:...

Question 17

Self- employment taxes include components for

Accepted Answer

Self-employment taxes consist of Social Security and Medicare hospital insurance taxes, which are similar to the FICA taxes paid by employees and employers.

Question 18

In computing AMTI, all of the following must be added back except

Accepted Answer

Home mortgage interest on a mortgage in effect since the home was purchased is not added back when computing Alternative Minimum Taxable Income (AMTI).

Question 19

Self- employed individuals are subject to the self- employment tax if their net earnings are more than $600.

Accepted Answer

The answer of Self- employed individuals are subject to the...

Question 20

George and Meredith who are married, have a regular tax liability of $19,379 based on regular taxable income of $125,000. The couple took the standard deduction in arriving at regular taxable income. This year they generated tax preferences of $25,000, and positive adjustments attributable to the exercise of incentive stock options of $30,000. What is George and Meredith's alternative minimum tax for 2018?

Accepted Answer

The answer of George and Meredith who are married, have...

Quiz 16: Tax Deductions and Travel Expenses for Employees and Self-Employed Individuals