Question 1

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

Accepted Answer

Taxpayers are allowed to deduct charitable contributions for alternative minimum tax purposes, but are not allowed to deduct state and local income taxes.

Question 2

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

False

Question 3

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

If a child's income is above a certain amount, their income may be subject to the trust and estate tax rates, which are generally higher than individual tax rates.

Question 4

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 rate structure includes a lower tax rate for long-term capital gains, but the exemption amount is lower than for regular income tax. Therefore, a taxpayer with a large amount of long-term capital gains may still end up owing alternative minimum tax, which makes them susceptible to it.

Question 5

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 are used by taxpayers with higher incomes, while tax tables are based on income ranges and are used by taxpayers with lower incomes.

Question 6

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

Accepted Answer

This is true. The alternative minimum tax (AMT) is a separate tax system that was created to ensure that high-income individuals and corporations pay a minimum amount of tax, even if they have many deductions and credits that reduce their regular taxable income. The AMT starts with regular taxable income and then adds back certain deductions and credits, resulting in a higher tax liability.

Question 7

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 required...

Question 8

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 under the age of 19 at the end of the tax year or under the age of 24 if they are full-time students. Children over the age of 24 are no longer considered "dependent children" for tax purposes and are not subject to the kiddie tax.

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 there's a significant income disparity between spouses.

Question 10

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 11

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 12

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

Accepted Answer

The answer of Long-term capital gains,dividends,and taxable interest income are...

Question 13

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 actually set up to tax higher levels of income at higher tax rates than lower levels of income. This is known as a progressive tax system.

Question 14

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 15

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

Accepted Answer

The standard deduction cannot be used for calculating the alternative minimum tax. Taxpayers must calculate their income tax liability using both regular tax rules and alternative minimum tax rules, and pay the higher amount.

Question 16

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

Accepted Answer

The AMT exemption amount is reduced, or phased out, for taxpayers with higher incomes.

Question 17

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 18

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

Accepted Answer

A reduction in regular income tax rates could lead to more taxpayers falling under the alternative minimum tax (AMT) since the AMT is designed to ensure that all taxpayers pay their fair share of taxes, regardless of deductions or credits. As regular tax rates go down, more taxpayers may find themselves subject to the AMT if their deductions and credits exceed certain limits set by the AMT rules.

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 tax rate schedules for married couples are not always equivalent to the sum of the individual tax rate schedules for each spouse. This can result in a higher overall tax burden for a married couple with similar high incomes compared to if they were single and filing individually. This phenomenon is known as the marriage penalty.

Question 20

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 allows fewer deductions. The taxpayer then pays the higher of the two amounts.

Quiz 8: Individual Income Tax Computation and Tax Credits