Prior to the effect of the tax credits,Justin's regular income tax liability is $200,000.and his tentative minimum tax is $195,000.Justin reports the following credits.

Calculate Justin's tax liability after credits.
A)$190,000
B)$194,000
C)$195,000
D)$200,000

Question

Prior to the effect of the tax credits,Justin's regular income tax liability is $200,000.and his tentative minimum tax is $195,000.Justin reports the following credits.
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Calculate Justin's tax liability after credits.
A)$190,000 
B)$194,000 
C)$195,000 
D)$200,000

Quizplus · Accepted Answer

Justin's regular income tax liability is $200,000 but his tentative minimum tax is $195,000, which means he is subject to the alternative minimum tax (AMT). However, he reports credits that will reduce his AMT liability. The question asks for his tax liability after credits, which means we need to subtract his credits from his AMT liability of $195,000. Therefore, his tax liability after credits is $195,000 - credits. The answer choices indicate that his tax liability after credits is less than $195,000, which means he reported enough credits to bring his AMT liability down to his regular income tax liability. The only answer that matches this requirement is B. Hence, B is the best choice.

Prior to the Effect of the Tax Credits,Justin's Regular Income