Question 1

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

Accepted Answer

Regular taxable income is one of the factors used to calculate the alternative minimum tax (AMT). Other factors include certain deductions and exemptions that may not be allowed under the AMT.

Question 2

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

In the current U.S. tax system, if both spouses earn similar high levels of income, they will likely pay more in taxes as a married couple than if they were single due to the tax rate schedules and the way income is taxed at higher rates as it grows. This is known as the marriage penalty. However, the size of the penalty depends on the specific incomes of the couple and other factors, so it may not always apply in every case.

Question 3

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

Accepted Answer

Taxpayers cannot claim the standard deduction for alternative minimum tax calculations. Instead, they must calculate their AMT liability based on a different set of rules and exemptions.

Question 4

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 income taxes.

Question 5

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 6

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 7

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 8

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 9

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 used by taxpayers with lower incomes. Tax rate schedules provide a more precise calculation of taxes owed based on income, while tax tables provide a simplified calculation based on income and filing status.

Question 10

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

Accepted Answer

The AMT exemption amount is phased out for high-income taxpayers. This means that as your income level increases, your AMT exemption amount decreases until you no longer qualify for any exemption.

Question 11

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 18 years old and have unearned income, or are between 18 and 24 years old and are full-time students with unearned income. Children over 24 years old are not subject to the kiddie tax.

Question 12

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 13

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 a separate tax system that operates parallel to the regular income tax system. The AMT is designed to ensure that taxpayers with higher incomes and significant deductions pay at least a minimum amount of tax. The AMT has a different rate structure, exemption amount, and deductions than the regular income tax. Additionally, capital gains and dividends are included in the AMT income calculation, which means that taxpayers with a significant amount of long-term capital gains may be subject to the AMT. Therefore, the statement is true.

Question 14

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 15

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.

Question 16

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 17

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 18

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...

Question 19

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 if the child's income is from a trust or estate, which is taxed differently than regular income.

Question 20

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 (AMT) is designed to ensure taxpayers with high income pay at least a minimum amount of tax, regardless of deductions and credits they may be eligible for. The AMT is calculated separately from regular income tax and taxpayers must pay the higher of the two. Therefore, when regular income tax rates are reduced, taxpayers may be more likely to fall into the AMT bracket if their income is high enough, resulting in more taxpayers being subject to the AMT.

Quiz 8: Individual Income Tax Computation and Tax Credits