Question 1

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 2

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

Accepted Answer

This statement is false. For alternative minimum tax purposes, taxpayers are not allowed to deduct state income taxes and are also subject to certain limitations on charitable contributions.

Question 3

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 separate returns.

Accepted Answer

False

Question 4

If both spouses of a married couple earn roughly equivalent wages, the couple is likely to pay 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 5

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

Accepted Answer

Income from an active trade or business is not considered net investment income and is therefore not subject to the 3.8% net investment income tax.

Question 6

All capital gains are taxed at preferential rates.

Accepted Answer

Long-term capital gains are taxed at preferential rates.

Question 7

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

Accepted Answer

This is true. The alternative minimum tax is calculated by starting with regular taxable income and making certain adjustments and additions to arrive at the alternative minimum taxable income.

Question 8

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 9

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 has unearned income (such as from investments) over a certain amount, it may be subject to the "kiddie tax" which taxes the income at the parent's marginal tax rate instead of at the child's lower rate.

Question 10

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

While each filing status has its own tax rate schedule, all tax rate schedules consist of tax brackets taxed at 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent, and 39.6 percent. However, the width or range of income within each bracket varies by filing status.

Question 11

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 the exemption amount is reduced or eliminated for taxpayers with higher incomes.

Question 12

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 for AMT purposes.

Question 13

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

Taxpayers make several "plus" and "minus" adjustments to regular taxable income to compute alternative minimum taxable income (AMTI).

Question 14

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 15

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 16

The alternative minimum tax is the AMT base multiplied by the AMT rate.

Accepted Answer

Above is the definition of the tentative minimum tax.

Question 17

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

Accepted Answer

According to the IRS, taxpayers are not allowed to deduct personal or dependency exemptions for alternative minimum tax purposes. This is because the AMT imposes a minimum tax on a broader base of income and disallows many deductions and exemptions that are allowed for regular income tax purposes.

Question 18

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 under age 19 or full-time students under age 24 at the end of the tax year.

Question 19

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 calculated by adding certain tax preferences and adjustments back to a taxpayer's regular taxable income. If regular income tax rates are reduced, taxpayers may have more income that falls below the AMT threshold, but the tax preferences and adjustments may not be similarly affected, resulting in more taxpayers being subject to the AMT.

Question 20

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

This is because tax rate schedules involve a more detailed calculation based on income brackets and tax rates, while tax tables provide a simpler calculation based on income and filing status. Generally, those with higher incomes have more complex tax situations and therefore require the use of tax rate schedules.

Quiz 8: Individual Income Tax Computation and Tax Credits