Prior to consideration of tax credits, Clarence's regular income tax liability is $200,000 and his tentative minimum tax
(TMT) is $180,000.Clarence holds nonrefundable business tax credits of $35,000.His tax liability for the year is
$165,000.

Question

Quizplus · Accepted Answer

Clarence's tax liability for the year, after considering the nonrefundable business tax credits, would be $165,000 only if his regular income tax liability before credits was equal to or less than his tentative minimum tax (TMT) plus the credits. However, since his regular tax liability ($200,000) is higher than his TMT ($180,000), and he has $35,000 in credits, his actual tax liability would be his regular tax liability minus the credits, assuming the credits do not reduce his tax below the TMT. Therefore, his tax liability would be $200,000 - $35,000 = $165,000, assuming the credits can fully apply. The statement as presented seems to ignore the comparison between regular tax liability and TMT after credits, which is a crucial step in determining the final tax liability under the Alternative Minimum Tax (AMT) rules. However, the calculation provided directly leads to a correct final tax liability by coincidence, not by correctly following the AMT rules, which involve comparing the regular tax liability and the TMT after applying credits.

Prior to Consideration of Tax Credits, Clarence's Regular Income Tax