Question 1

Beulah, who is single, provides you with the following information from her financial records for 2017. Compute Beulah's AMTI. ​
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Accepted Answer

To compute Beulah's AMTI, we need to add back certain deductions to her taxable income.

Beulah's taxable income for 2017 can be calculated as follows:

Salary income: $120,000
Interest income: $4,000
Total itemized deductions: $37,900
Personal exemption: $4,050
Taxable income: $82,050

To calculate AMTI, we need to add back the following deductions:

1. Standard deduction: $6,350
2. State and local income tax deduction: $3,540
3. Miscellaneous itemized deductions: $1,890
4. Personal exemption: $4,050

Adding back these deductions, we get:

Taxable income: $82,050
Add back: $15,830
AMTI: $97,880

Therefore, the correct answer is D) $232,050.

Question 2

Which of the following statements is correct?

Accepted Answer

The AMT is the difference between the tentative minimum tax and the regular income tax liability, whichever is higher. 
In this case, the tentative minimum tax is $12,000 and the regular income tax liability is $10,000. So, the AMT is $2,000 ($12,000 - $10,000 = $2,000). Therefore, option D is correct.

Question 3

Dale owns and operates Dale's Emporium as a sole proprietorship. On January 30, 2003, Dale's Emporium acquired a warehouse for $100,000. For regular income tax purposes in 2017, depreciation was deducted under MACRS using a 2.564% rate. Determine the AMT adjustment for depreciation and indicate whether it is positive or negative.

Accepted Answer

The answer of Dale owns and operates Dale's Emporium as...

Question 4

Vicki owns and operates a news agency (as a sole proprietorship). During 2017, she incurred expenses of $24,000 to increase circulation of newspapers and magazines that her agency distributes. For regular income tax purposes, she elected to expense the $24,000 in 2017. In addition, Vicki incurred $15,000 in circulation expenditures in 2018 and again elected expense treatment. What AMT adjustments will be required in 2017 and 2018 as a result of the circulation expenditures?

Accepted Answer

For AMT purposes, circulation expenditures must be capitalized and amortized over 3 years. In 2017, Vicki expensed $24,000, but for AMT, she should have capitalized and amortized $8,000 per year, resulting in a $16,000 positive AMT adjustment. In 2018, she should have amortized $8,000 of the 2017 expenses and $5,000 of the 2018 expenses, resulting in a $2,000 positive AMT adjustment.

Question 5

Kay claimed percentage depletion of $119,000 for the current year for regular income tax purposes. Cost depletion would have been $60,000. Her basis in the property was $90,000 at the beginning of the current year. Kay must treat the percentage depletion deducted in excess of cost depletion, or $59,000, as a preference in computing AMTI.

Accepted Answer

The answer of Kay claimed percentage depletion of $119,000 for...

Question 6

For individual taxpayers, the AMT credit is applicable for the AMT that results from timing differences, but it is not available for the AMT that results from the adjustment for itemized deductions or exclusion preferences.

Accepted Answer

The AMT credit can be used to offset AMT resulting from timing differences, but not for AMT resulting from certain other adjustments such as itemized deductions or exclusion preferences.

Question 7

​A, B and C are each single, report wage income of $135,000, and take the standard deduction. The following additional information is provided about each taxpayer. ​
A: Resides in New York. $45,000 interest income from Treasury bonds.
B: Resides in Nevada. $45,000 capital gain from the sale of stock.
C: Resides in Florida. $45,000 interest income from private-activity municipal bonds.
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All else being equal and taking into consideration the principles underlying the AMT, which of these taxpayers has the highest likelihood of being subject to the AMT in the current tax year?
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Accepted Answer

Taxpayer C has the highest likelihood of being subject to the AMT in the current tax year due to the interest income from private-activity municipal bonds. The interest income from private-activity municipal bonds is added back to calculate the AMT, whereas the interest income from Treasury bonds and capital gains are not added back. Additionally, residing in Nevada or New York does not directly impact the likelihood of being subject to the AMT.

Question 8

If the taxpayer elects to capitalize and to amortize intangible drilling costs over a 3-year period for regular income tax purposes, there is no adjustment or preference for AMT purposes.

Accepted Answer

Intangible drilling costs must be capitalized and amortized over a 60-month period for AMT purposes, regardless of the taxpayer's election for regular income tax purposes. Therefore, there is a preference item for AMT purposes if the taxpayer elects to amortize over only 3 years.

Question 9

​Which of the following statements describing the alternative minimum tax (AMT) is most correct?

Accepted Answer

The alternative minimum tax (AMT) was created to ensure that all taxpayers with economic income pay at least some income tax. It was not designed to target low-income taxpayers who elect the standard deduction, as suggested in option A. While option B is true, it does not fully capture the purpose of the AMT. Exemption amounts are indeed higher for regular tax purposes than for AMT purposes, as stated in option D, but this does not provide a complete description of the AMT. Option E is incorrect as option A is not true.

Question 10

Interest income on private activity bonds issued before 2009 and after 2010, reduced by expenses incurred in carrying the bonds, is a preference item that is included in computing AMTI.

Accepted Answer

This statement is true. Private activity bond interest income is a preference item for AMT calculation and is reduced by expenses incurred in carrying the bonds. This applies to bonds issued before 2009 and after 2010.

Question 11

The AMT exemption for a C corporation is $50,000, reduced by 50% of the amount by which AMTI exceeds $150,000.

Accepted Answer

The AMT exemption for a C corporation is not $50,000. The AMT exemption was repealed for C corporations by the Tax Cuts and Jobs Act of 2017.

Question 12

Jackson sells qualifying small business stock for $125,000 (adjusted basis of $105,000) in 2017 (the stock was acquired in 2011). In calculating gross income for regular income tax purposes, he excludes all of his realized gain of $20,000. The $20,000 exclusion is a preference in calculating Jackson's AMTI.

Accepted Answer

Excluding realized gain from qualifying small business stock is a preference item in calculating Alternative Minimum Taxable Income (AMTI), not a preference in calculating regular income tax.

Question 13

Ashby, who is single and age 30, provides you with the following information from his financial records for 2017. ​
 Calculate his AMT exemption for 2017.

Accepted Answer

To calculate the AMT exemption for 2017, we need to look at the IRS AMT exemption table. For a single individual with no dependents like Ashby, the exemption amount for 2017 is $54,300. However, the exemption amount begins to phase out at higher income levels. According to the IRS, the exemption begins to phase out at income levels of $120,700 for single filers. Because Ashby's income level is not provided, we cannot determine if he qualifies for the full AMT exemption amount or if it is reduced due to the phase-out. Therefore, the best choice is C, which is the only answer option that falls within the range of possible exemption amounts.

Question 14

Certain adjustments apply in calculating the corporate AMT that do not apply in calculating the noncorporate AMT and certain adjustments apply in calculating the noncorporate AMT that do not apply in calculating the corporate AMT.

Accepted Answer

This statement is true. Certain adjustments apply in calculating the corporate AMT (Alternative Minimum Tax) that do not apply in calculating the noncorporate AMT and certain adjustments apply in calculating the noncorporate AMT that do not apply in calculating the corporate AMT. This is because corporations and noncorporate taxpayers (such as individuals, estates, and trusts) have different tax rules and operating structures.

Question 15

The corporate AMT does not apply to "small" C corporations.

Accepted Answer

The answer of The corporate AMT does not apply to...

Question 16

C corporations are not required to make AMT adjustments for depreciation.

Accepted Answer

C corporations are required to make AMT adjustments for depreciation. The AMT system requires corporations to calculate their tax liability twice: once under the regular tax rules and once under the AMT rules. Adjustments must be made to certain items of income and deductions, including depreciation, in order to calculate the AMT liability.

Question 17

The AMT exemption for a corporation with $225,000 of AMTI is $18,750.

Accepted Answer

The question refers to the AMT exemption for a corporation, which is different from the AMT exemption for individuals. The current AMT exemption for corporations is $0, meaning that all corporations with AMTI (Alternative Minimum Taxable Income) are subject to alternative minimum tax. Therefore, there is no exemption of $18,750 for a corporation with $225,000 of AMTI.

Question 18

All of a C corporation's AMT is available for carryover as a minimum tax credit, regardless of whether the adjustments and preferences originate from timing differences or AMT preferences.

Accepted Answer

This statement is true. All of a C corporation's AMT (Alternative Minimum Tax) can be carried over as a minimum tax credit, without distinguishing between adjustments and preferences originating from timing differences or AMT preferences. This credit can be applied in future years to reduce regular tax liability.

Question 19

Which of the following statements is correct?

Accepted Answer

Option A is incorrect because if the tentative minimum tax exceeds the regular income tax liability, the excess must be paid as AMT. 
Option C is incorrect because the highest AMT tax rate for individuals is 28%. 
Option D is incorrect because options A and C are incorrect. 
Option E is incorrect because option A is incorrect. Therefore, Option B is the only correct statement.

Question 20

Which of the following statements is incorrect?

Accepted Answer

The answer of Which of the following statements is incorrect?
...

Quiz 12: Alternative Minimum Tax

Beulah, who is single, provides you with the following information from her financial records for 2017. Compute Beulah's AMTI.

Which of the following statements is correct?

For individual taxpayers, the AMT credit is applicable for the AMT that results from timing differences, but it is not available for the AMT that results from the adjustment for itemized deductions or exclusion preferences.

If the taxpayer elects to capitalize and to amortize intangible drilling costs over a 3-year period for regular income tax purposes, there is no adjustment or preference for AMT purposes.

Which of the following statements describing the alternative minimum tax (AMT) is most correct?

Interest income on private activity bonds issued before 2009 and after 2010, reduced by expenses incurred in carrying the bonds, is a preference item that is included in computing AMTI.

The AMT exemption for a C corporation is $50,000, reduced by 50% of the amount by which AMTI exceeds $150,000.

Ashby, who is single and age 30, provides you with the following information from his financial records for 2017. Calculate his AMT exemption for 2017.

Certain adjustments apply in calculating the corporate AMT that do not apply in calculating the noncorporate AMT and certain adjustments apply in calculating the noncorporate AMT that do not apply in calculating the corporate AMT.

The corporate AMT does not apply to "small" C corporations.

C corporations are not required to make AMT adjustments for depreciation.

The AMT exemption for a corporation with $225,000 of AMTI is $18,750.

All of a C corporation's AMT is available for carryover as a minimum tax credit, regardless of whether the adjustments and preferences originate from timing differences or AMT preferences.

Which of the following statements is correct?

Which of the following statements is incorrect?

Quiz 12: Alternative Minimum Tax

Beulah, who is single, provides you with the following information from her financial records for 2017. Compute Beulah's AMTI. ​ ​

Which of the following statements is correct?

For individual taxpayers, the AMT credit is applicable for the AMT that results from timing differences, but it is not available for the AMT that results from the adjustment for itemized deductions or exclusion preferences.

If the taxpayer elects to capitalize and to amortize intangible drilling costs over a 3-year period for regular income tax purposes, there is no adjustment or preference for AMT purposes.

​Which of the following statements describing the alternative minimum tax (AMT) is most correct?

Interest income on private activity bonds issued before 2009 and after 2010, reduced by expenses incurred in carrying the bonds, is a preference item that is included in computing AMTI.

The AMT exemption for a C corporation is $50,000, reduced by 50% of the amount by which AMTI exceeds $150,000.

Ashby, who is single and age 30, provides you with the following information from his financial records for 2017. ​ Calculate his AMT exemption for 2017.

Certain adjustments apply in calculating the corporate AMT that do not apply in calculating the noncorporate AMT and certain adjustments apply in calculating the noncorporate AMT that do not apply in calculating the corporate AMT.

The corporate AMT does not apply to "small" C corporations.

C corporations are not required to make AMT adjustments for depreciation.

The AMT exemption for a corporation with $225,000 of AMTI is $18,750.

All of a C corporation's AMT is available for carryover as a minimum tax credit, regardless of whether the adjustments and preferences originate from timing differences or AMT preferences.

Which of the following statements is correct?

Which of the following statements is incorrect?

Beulah, who is single, provides you with the following information from her financial records for 2017. Compute Beulah's AMTI.

Which of the following statements describing the alternative minimum tax (AMT) is most correct?

Ashby, who is single and age 30, provides you with the following information from his financial records for 2017. Calculate his AMT exemption for 2017.