(d) The requirement is to determine the amount of Karen’s unused alternative minimum tax credit that will carry over to 2013. The amount of alternative minimum tax paid by an individual that is attributable to timing preferences and adjustments is allowed as a tax credit (i.e., mini-mum tax credit) that can be applied against regular tax liability in future years. The minimum tax credit is computed as the excess of the AMT actually paid over the AMT that would have been paid if AMTI included only exclusion preferences and adjustments (e.g., disallowed itemized deductions, excess percentage depletion, taxexempt private activity bond interest). Since the minimum tax credit can only be used to reduce future regular tax liability, the credit can only reduce regular tax liability to the point at which it equals the taxpayer’s tentative minimum tax. In this case, Karen’s payment of $20,000 of alternative minimum tax in 2011 generates a minimum tax credit of $20,000 – $9,000 = $11,000 which is carried forward to 2012. Since Karen’s 2012 regular tax liability of $50,000 exceeded her tentative minimum tax of $45,000, $5,000 of Karen’s minimum tax credit would be used to reduce her 2012 tax liability to $45,000. Therefore, $11,000 – $5,000 = $6,000 of unused minimum tax credit would carry over to 2013.
(d) The requirement is to determine the proper treatment for the credit for prior year alternative minimum tax (AMT). The amount of AMT paid by an individual taxpayer that is attributable to timing differences can be carried forward indefinitely as a minimum tax credit to offset the individual’s future regular tax liability (not future AMT liability). The amount of AMT credit to be carried forward is the excess of the AMT actually paid over the AMT that would have been paid if AMTI included only exclusion preferences (e.g., disallowed itemized deductions, preferences for excess percentage depletion, and taxexempt private activity bond interest).
(b) The requirement is to determine the correct statement regarding the computation of the alternative minimum tax (AMT). A taxpayer is subject to the AMT only if the taxpayer’s tentative AMT exceeds the taxpayer’s regular tax. Thus, the alternative minimum tax is computed as the excess of the tentative AMT over the regular tax.
(c) The requirement is to determine the correct statement regarding the self-employment tax. The self-employment tax is imposed at a rate of 15.3% on individuals who work for themselves (e.g., sole proprietor, independent contractor, partner). Generally, one-half of an individual’s self-employment tax is deductible from gross income in arriving at adjusted gross income.
(c) The requirement is to determine the correct statement with regard to social security tax (FICA) withheld in an amount greater than the maximum for a particular year. If an individual works for more than one employer, and combined wages exceed the maximum used for FICA purposes, too much FICA tax will be withheld. In such case, since the excess results from correct withholding by two or more employers, the excess should be claimed as a credit against income tax. Answer (a) is incorrect because the excess cannot be used as an itemized deduction. Answer (b) is incorrect because if employers withhold correctly, no reimbursement can be obtained from the employers. Answer (d) is incorrect because if the excess FICA tax withheld results from incorrect withholding by any one employer, the employer must reimburse the excess and it cannot be claimed as a credit against tax.
(d) The requirement is to determine Smith’s gross income from self-employment. Self-employment income represents the net earnings of an individual from a trade or business carried on as a sole proprietor or partner, or from rendering services as an independent contractor (i.e., not an employee). The $8,000 consulting fee and the $2,000 of director’s fees are selfemployment income because they are related to a trade or business and Smith is not an employee.
(c) The requirement is to determine which credit is not a component of the general business credit. The general business credit is a combination of several credits that provide uniform rules for current and carryback-carryover years. The general business credit is composed of the investment credit, work opportunity credit, alcohol fuels credit, research credit, low-income housing credit, enhanced oil recovery credit, disabled access credit, renewable electricity production credit, empowerment zone employment credit, Indian employment credit, employer social security credit, orphan drug credit, the new markets credit, the small employer pension plan start-up costs credit, and the employer-provided child care facilities credit. A general business credit in excess of the limitation amount is carried back one year and forward twenty years to offset tax liability in those years.
(a) The requirement is to determine which tax credit is a combination of credits to provide for uniform rules for the current and carryback-carryover years. The general business credit is composed of the investment credit, work opportunity credit, welfare-to-work credit, alcohol fuels credit, research credit, lowincome housing credit, enhanced oil recovery credit, disabled access credit, renewable electricity production credit, empowerment zone employment credit, Indian employment credit, employer social security credit, orphan drug credit, the new markets credit, the small employer pension plan start-up costs credit, and the employer-provided child care facilities credit. A general business credit in excess of the limitation amount is carried back one year and forward twenty years to offset tax liability in those years.
(a) The requirement is to determine the amount that can be claimed as a credit for the elderly. The amount of credit (limited to tax liability) is 15% of an initial amount reduced by social security and 50% of AGI in excess of $10,000. Here, the credit is the lesser of (1) the taxpayers’ tax liability of $61, or (2) 15% [$7,500 – $3,000 – (.50)($22,200 – $10,000)] = $0.
(c) The requirement is to compute Nora’s child care credit for 2012. Since she has two dependent preschool children, all $6,000 paid for child care qualifies for the credit. The credit is 35% of qualified expenses, but is reduced by one percentage point for each $2,000 (or fraction thereof) of AGI over $15,000 down to a minimum of 20%. Since Nora’s AGI is $44,000, her credit is 20% × $6,000 = $1,200.
Total Questions: | |
Correct Answers: | |
Wrong Answers: | |
Percentage: |
|