Alternative Minimum Tax

Question 1

Compute the 2021 AMT exemption for the following taxpayer. Click here to access the exemption table.

Bristol, who is single, has an AMTI of $584,600. Her AMT exemption is $__.

Answer 1

$58,350

Question 2

Compute the 2021 AMT exemption for the following taxpayer. Click here to access the exemption table.

Marley and Naila are married and file a joint tax return. Their AMTI is $1,143,200. Their AMT exemption is $__.

Answer 2

$90,600

Question 3

In March 2021, Serengeti exercised an ISO that had been granted by his employer, Thunder Corporation, in December 2018. Serengeti acquired 4,900 shares of Thunder stock for the exercise price of $130 per share. The fair market value of the stock at the date of exercise was $182 per share.

What is Serengeti’s 2018 AMT adjustment related to the ISO?

Answer 3

No adjustment

Question 4

In March 2021, Serengeti exercised an ISO that had been granted by his employer, Thunder Corporation, in December 2018. Serengeti acquired 4,900 shares of Thunder stock for the exercise price of $130 per share. The fair market value of the stock at the date of exercise was $182 per share.

What is Serengeti’s 2021 AMT adjustment related to the ISO?

Answer 4

A positive adjustment of $254,800

Calculation:

(4,900 shares x $182 share price) - (4,900 shares x $130 share price)= $254,800 adjustment

Question 5

Brennen sold a machine used in his business for $249,000. The machine was purchased eight years ago for $448,200. Depreciation up to the date of the sale for regular tax purposes was $286,350 and $257,715 for AMT purposes. What AMT adjustment arises as a result of the sale of the machine?

For AMT purposes, Brennen has a __ adjustment of $__ related to the sale.

Answer 5

Regular Income Tax

$448,200 historical cost - 286,350 depreciation to-date = $161,850 adjusted basis

$249,000 selling price - 161,850 adjusted basis = 87,150 recognized gain

AMT

$448,200 historical cost - 257,715 depreciation to-date = $190,485 adjusted basis

$249,000 selling price - 190,485 adjusted basis = $58,515 recognized gain

$87,150 regular income tax recognized gain - 58,515 AMT recognized gain = $28,635 negative AMT adjustment

NOTE: If regular income tax gain > AMT gain, then there is a negative AMT adjustment. If regular income tax gain < AMT gain, then there is a positive AMT adjustment.

Question 6

Yanni, who is single, provides you with the following information for 2021:

$119,200 Salary

11,920 State income taxes

10,728 Mortgage interest expense on principal residence

2,384 Charitable contributions

1,788 Interest income

Calculate the following using the exemption table.

a. Yanni’s taxable income
b. Yanni’s AMT base
c. Yanni’s tentative minimum base

Question 7

During 2021, Lincoln Company hires 17 individuals who are certified to be members of a qualifying targeted group. Each employee works in excess of 600 hours and is paid wages of $6,850 during the year.

Determine the amount of Lincoln’s work opportunity credit.

Answer 7

Calculation:

= $6,000 x 40% x 17 employees = $40,800 Work Opportunity Credit

Note: The work opportunity credit is 40% on the first $6,000 in paid wages per employee.

Question 8

Samuel and Annamaria are married, file a joint return, and have three qualifying children. In 2021, they earn wages of $37,900 and no other income.

The earned income credit is $__.

Answer 8

Calculation:

$6,728 maximum credit - [($37,900 earned wages - 25,470 phaseout base) x 21.06% phaseout rate] = $4,110 Earned Income Credit

Refer to Earned Income Credit and Phaseout Percentages Table

Question 9

In 2021, Santiago and Amy are married and file a joint tax return. They have three dependent children, ages 11, 14, and 22. All parties are U.S. citizens. The couple’s AGI is $104,200.

Santiago and Amy’s child tax credit for 2021 is $__ and dependent tax credit is $__.

Answer 9

2 qualifying children (under age 18) x $3,000 child tax credit = $6,000

1 other qualifying dependent x $500 dependent tax credit = $500

Note:

Children under age 6 qualify for a $3,600 child tax credit, children between 7-17 qualify for $3,000 child tax credit, and other qualifying dependents qualify for $500 dependent tax credit.

Question 10

Paola and Isidora are married; file a joint tax return; report modified AGI of $129,635; and have one dependent child, Dante. The couple paid $11,865 of tuition and $12,075 for room and board for Dante (a freshman). Dante is a full-time student and claimed as a dependent by Paola and Isidora.

Determine the amount of the American Opportunity credit for 2021.

Answer 10

Calculation:

$2,000 + (2,000 x 25%) = $2,500 American Opportunity Credit

Note: The American Opportunity Credit is 100% on the first $2,000 plus 25% on the second $2,000 paid in tuition fees for the first 4 years of higher education.

Question 11

Rafael and Lucy, married taxpayers, each contribute $4,950 to their respective § 401(k) plans offered through their employers. The AGI reported on the couple’s joint return is $53,400. Determine their credit for retirement plan contributions (the Saver’s Credit).

Click here to see the “Saver’s” Credit Rate and AGI Thresholds table.

As a result, they may claim a credit for their retirement plan contributions of $__.

Answer 11

Calculation:

($2,000 Rafael’s contribution + 2,000 Lucy’s contribution) x 10% Saver’s Credit AGI threshold rate = $400 Retirement Credit

Note: The cap on contributions is $2,000 per person. Refer to the Saver’s Credit AGI Threshold Table to get the applicable rate used in the final step.

Question 12

In 2021, Bianca earned a salary of $164,600 from her employer.

Determine the amount of FICA Social Security taxes and Medicare taxes withheld from her salary.

Answer 12

$142,800 social security base x 6.20% social security tax rate = $8,854 social security tax

$164,600 salary x 1.45% medicare tax rate = $2,387 medicare tax

Question 13

Max, who is single and age 30, provides you with the following information from his financial records for 2021.

Regular income tax liability$77,794AMTI525,000Taxable income295,000

Calculate his AMT exemption for 2021.

a. $0
b. $73,250
c. $350
d. $73,600

Question 14

Raj, who is single and itemizes deductions, provides you with the following information from her financial records for 2021. Compute Raj’s AMTI.

Regular income tax liability$104,044AMT positive adjustments33,000AMT preferences75,000Taxable income370,000

a. $368,600
b. $404,400
c. $0
d. $478,000
e. $490,000

Question 15

Which of the following statements is correct?

a. If the tentative minimum tax exceeds the regular tax liability, AMT is $0
b. The highest AMT rate for married individuals filing jointly is 26%
c. The AMT exemption amount decreases as AMTI increases
d. The highest AMT rate for individuals is 26%

Answer 15

c. The AMT exemption amount decreases as AMTI increases

Question 16

For regular tax purposes, Yolanda, who is single, is in the 32% tax bracket. For 2021, her AMT base is $420,000. Her tentative AMT is:

a. $51,974
b. $113,602
c. $117,600
d. $109,200

Answer 16

b. $113,602

Question 17

Roger is considering making a $6,000 investment in a venture that its promoter promises will generate immediate tax benefits for him. Roger, who does not anticipate itemizing his deductions, is subject to a 30% marginal income tax bracket. If the investment is of a type that produces a tax credit of 40% of the amount of the expenditure, by how much will Roger’s tax liability decline because of the investment?

a. $2,200
b. $2,400
c. $1,800
d. $0

Answer 17

b. $2,400

Question 18

Refundable tax credits include the:

a. Tax credit for rehabilitation expenses
b. Foreign tax credit
c. Credit for certain retirement plan contributions
d. Earned income credit

Answer 18

d. Earned income credit

Question 19

Cardinal Corporation hires two individuals who are certified to be eligible employees for the work opportunity tax credit under the general rules (e.g., food stamp recipients), each of whom is paid $9,000 during 2021. As a result of this event, Cardinal Corporation may claim a work opportunity credit of:

a. $4,800
b. $2,880
c. $7,200
d. $1,440

Answer 19

a. $4,800

Question 20

Rex and Dena are married and have two children, Michelle (age seven) and Nancy (age five). During 2021, Rex earned a salary of $26,500, received interest income of $300, and filed a joint income tax return with Dena. Dena had $0 gross income. Their earned income credit for the year is:

a. $5,980
b. $5,763
c. $5,700
d. $0

Question 21

Harry and Wei are married and file a joint income tax return. On their 2021 tax return, they report $44,000 of adjusted gross income ($20,000 salary earned by Harry and $24,000 salary earned by Wei) and report two dependent children. During the year, they pay the following amounts to care for their four-year old son and six-year old daughter while they work.

ABC Day Care Center$3,200Blue Ridge Housekeeping Services2,000Mindy Mason (Harry’s mother)1,000

Harry and Wei may claim a credit for child and dependent care expenses of:

a. $1,600
b. $3,100
c. $2,100
d. $2,600

Question 22

Which of the following statements is true regarding the education tax credits?

a. The lifetime learning credit is available for qualifying tuition and related expenses incurred by students pursuing only graduate degrees.
b. The American Opportunity credit permits a maximum credit of 20% of qualified expenses up to $10,000 per year.
c. The American Opportunity credit is calculated per eligible student and the lifetime learning credit is available per taxpayer.
d. Continuing education expenses do not qualify for either education credit.

Answer 22

c. The American Opportunity credit is calculated per eligible student and the lifetime learning credit is available per taxpayer.