Question 1

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 2

In certain circumstances a child with very little income may have at least a portion of their income taxed at the parents' marginal tax rate.

Accepted Answer

If a child's income is below a certain threshold, it may not be subject to income tax. However, if the child's income exceeds that threshold, a portion of their income may be subject to taxation at the parents' marginal tax rate. This is known as the "kiddie tax."

Question 3

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 by starting with your regular taxable income and then making adjustments and adding back certain deductions to arrive at your AMT taxable income.

Question 4

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

Accepted Answer

The AMT exemption amount begins to phase out for individuals with incomes above a certain threshold. For tax year 2021, the phase-out threshold starts at $523,600 for single filers and $1,047,200 for joint filers.

Question 5

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

Accepted Answer

Taxpayers subject to alternative minimum tax are not allowed to deduct either state income taxes or charitable contributions.

Question 6

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 7

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

Accepted Answer

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

Question 8

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

Accepted Answer

The tax rate schedules for married couples are not simply twice the amount of the schedules for single individuals, which can lead to a higher tax rate for a married couple with similar incomes. This is known as the marriage penalty.

Question 9

Taxpayers are not allowed to deduct personal or dependency exemptions for alternative minimum tax purposes.

Accepted Answer

This is true. The alternative minimum tax (AMT) system does not allow taxpayers to deduct personal exemptions or dependency exemptions.

Question 10

Tax rate schedules are provided for use by (relatively) higher income taxpayers while thetax tables are provided for use by (relatively) lower income taxpayers.

Accepted Answer

Tax rate schedules are designed for taxpayers with higher incomes, while tax tables are designed for taxpayers with lower incomes. This is because tax rate schedules contain a larger number of tax brackets and often have more complex calculations, which are more relevant to higher-income taxpayers. Tax tables, on the other hand, are simpler and easier to understand and are therefore more appropriate for taxpayers with lower incomes.

Question 11

If a married couple has one primary breadwinner, filing a joint return will likely result ina 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 12

Both the width (or range) of the tax brackets (the amount of income taxed at a particularrate) 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...

Question 13

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 designed to ensure that taxpayers with high levels of income and certain tax deductions still pay a minimum amount of tax. If regular income tax rates are reduced, more taxpayers may fall below the AMT threshold, triggering the AMT and requiring them to pay the higher tax rate.

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

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 16

Generally, income from an active trade or business is subject to the 3.8% net investmentincome tax.

Accepted Answer

Income from an active trade or business is not subject to the 3.8% net investment income tax. This tax applies only to certain investment income such as dividends, interest, rents, and capital gains.

Question 17

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

Accepted Answer

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

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

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 at the end of the tax year, or who are 18-23 years old and are full-time students. It does not apply to children who are 24 years old or older.

Question 20

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

Accepted Answer

The tax rate schedules are 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.

Quiz 8: Individual Income Tax Computation and Tax Credits