Chapter 7 Tax Quiz

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  • 1/11 Questions

    AMT is meant to ensure that higher-income individuals do not get more benefit than intended from allowable deductions, exemptions, etc.

    • True
    • False
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About This Quiz

The 'Chapter 7 Tax Quiz' assesses understanding of tax concepts like preferential tax rates, AMT, and common adjustments. It ensures learners grasp how deductions and exemptions affect different income groups, enhancing their financial literacy and tax planning skills.

Chapter 7 Tax Quiz - Quiz

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  • 2. 

    Juanita has a tentative minimum tax of $65,200 and a regular tax liability of $60,175.  She has three exemptions and files a married joint return. What is her AMT? (form $x,xxx)

  • 3. 

    An AMT exemption is increases the likelihood that lower income individuals will have to pay AMT

    • True

    • False

    Correct Answer
    A. False
    Explanation
    An AMT exemption is a provision that helps lower income individuals avoid paying the Alternative Minimum Tax (AMT). By providing an exemption, it reduces the likelihood that they will have to pay AMT. Therefore, the statement that an AMT exemption increases the likelihood that lower income individuals will have to pay AMT is false.

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  • 4. 

    Courtney is a head of household and has an AMTI of $133,620.  What is her AMT base? (form $XX,XXX)  

    Correct Answer
    $90,450
    90450
    Explanation
    See example 7-9

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  • 5. 

    Juanita is married and files a joint tax return with her husband. What is her tentative minimum tax if her AMT base is $250,000, which includes $10,000 in qualified dividends? (Form $xx,xxx)

    Correct Answer
    $65,200
    65,200
    65200
    Explanation
    175,000 x 26% = 45,500
    65,000 x 28% = 18,200
    Dividends
    10,000 x 15% = $1.500
    Tentitive minimum tax = $65,200

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  • 6. 

    Courtney has taxable income of $111,107 and three personal exemptions.   She received $500 in tax-exempt interest on a Cincinnati bond, $3,550 in real estate property taxes, $6,700 in state income taxes and $1,083 for miscellaneous itemized deductions in excess of 2% floor.  Additionally, she received a $420 state income tax refund.  What is her alternative minimum taxable income? 

    • $134,460

    • $133,620

    • $133,120

    • $123,360

    Correct Answer
    A. $133,620
    Explanation
    See page 7-11

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  • 7. 

    Preferential tax rates are 0% for taxpayers in what tax brackets?

    • 0% and 10%

    • Only 15%

    • 10% and 15%

    • 15% and above

    Correct Answer
    A. 10% and 15%
    Explanation
    The correct answer is 10% and 15%. This means that taxpayers falling into these tax brackets will be subject to preferential tax rates of either 10% or 15%.

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  • 8. 

    Which are the Common AMT Adjustments that can classify as plus or minus adjustments? 

    • Tax-exempt interest from private activity bonds

    • Real and personal property taxes deducted as itemized deductions

    • State income or sales taxes

    • Home equity interest expense

    • Misc. Itemized deductions in excess of 2% floor

    • Depreciation

    • State income tax refunds included in regular taxable income

    • Gain or loss on sale of depreciable assets

    Correct Answer
    A. Depreciation
    Explanation
    Depreciation is a common AMT adjustment that can classify as a plus or minus adjustment. Under the regular tax system, businesses are allowed to deduct the cost of their assets over time through depreciation. However, under the Alternative Minimum Tax (AMT), the depreciation deductions may be different. The AMT requires businesses to use a different depreciation method and recovery period for certain assets, which can result in either a positive or negative adjustment to their taxable income. Therefore, depreciation can be classified as a plus or minus adjustment depending on how it affects the taxpayer's AMT liability.

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  • 9. 

    Which AMT adjustments must be added back?

    • Personal exemption amount

    • Itemized deduction amount

    • Standard deduction amount

    • Medical expenses greater than 7.5% of AGI

    • Miscellaneous itemized deductions

    • Mortgage interest

    Correct Answer(s)
    A. Personal exemption amount
    A. Standard deduction amount
    A. Miscellaneous itemized deductions
    Explanation
    The personal exemption amount, standard deduction amount, and miscellaneous itemized deductions must be added back as AMT adjustments. The personal exemption amount is added back because it is not allowed as a deduction for AMT purposes. The standard deduction amount is added back because AMT does not allow for a standard deduction. Miscellaneous itemized deductions are added back because they are generally subject to a 2% AGI floor for regular tax purposes, but not for AMT purposes.

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  • 10. 

    Which are the Common AMT Adjustments that classify as minus adjustments? 

    • Tax-exempt interest from private activity bonds

    • Real and personal property taxes deducted as itemized deductions

    • State income or sales taxes

    • Home equity interest expense

    • Misc. Itemized deductions in excess of 2% floor

    • Depreciation

    • State income tax refunds included in regular taxable income

    • Gain or loss on sale of depreciable assets

    Correct Answer(s)
    A. State income tax refunds included in regular taxable income
    A. Gain or loss on sale of depreciable assets
    Explanation
    The common AMT adjustments that classify as minus adjustments are state income tax refunds included in regular taxable income and gain or loss on the sale of depreciable assets. These adjustments reduce the taxpayer's alternative minimum taxable income, which is used to calculate the alternative minimum tax (AMT). State income tax refunds that were previously deducted as an itemized deduction are added back to taxable income for AMT purposes. Similarly, the gain or loss on the sale of depreciable assets is adjusted to reflect the AMT calculation.

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  • 11. 

    Which are the Common AMT Adjustments that classify as plus adjustments? 

    • Tax-exempt interest from private activity bonds

    • Real and personal property taxes deducted as itemized deductions

    • State income or sales taxes

    • Home equity interest expense

    • Misc. Itemized deductions in excess of 2% floor

    • Depreciation

    • State income tax refunds included in regular taxable income

    • Gain or loss on sale of depreciable assets

    Correct Answer(s)
    A. Tax-exempt interest from private activity bonds
    A. Real and personal property taxes deducted as itemized deductions
    A. State income or sales taxes
    A. Home equity interest expense
    A. Misc. Itemized deductions in excess of 2% floor
    Explanation
    The Common AMT Adjustments that classify as plus adjustments include tax-exempt interest from private activity bonds, real and personal property taxes deducted as itemized deductions, state income or sales taxes, home equity interest expense, and misc. itemized deductions in excess of 2% floor. These adjustments increase the taxpayer's alternative minimum tax liability.

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  • Current Version
  • May 30, 2024
    Quiz Edited by
    ProProfs Editorial Team
  • Mar 08, 2012
    Quiz Created by
    Mindotheplusman
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