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tax problems - questin ch 15




Question;1. LO.1 Priscilla recently was promoted and received a substantial raise. She talks to her tax adviser about the potential tax ramifications. After making some projections, her adviser ?welcomes her to the AMT club.? Priscilla believes that it is unfair that she must pay more than the regular income tax, as she is a ?HENRY? (high earner not rich yet) with substantial college-related debts. Explain to Priscilla the purpose of the AMT and why it applies to her.2. LO.2 How can the AMT be calculated without using taxable income (as determined for purposes of the regular income tax) as a starting point? Be specific.3. LO.2 Both AMT adjustments and AMT preferences can cause AMTI to increase. Both AMT adjustments and AMT preferences can cause AMTI to decrease. Evaluate these statements.4. LO.2, 4 Identify which of the following are tax preferences.a. Seven percent of the exclusion associated with gains on the sale of certain small business stock.b. Exclusion on the receipt of property by gift or by inheritance.c. Exclusion associated with payment of premiums by the employer on group term life insurance for coverage not in excess of $50,000.d. Percentage depletion in excess of the property?s adjusted basis.5. LO.2, 4 Identify which of the following are tax preferences.a. Exclusion for qualified employee discount provided by employer.b. Exclusion to employee on the employer?s contribution to the employee?s pension plan.c. Excess of deduction for circulation expenditures for regular income tax purposes over the deduction for AMT purposes.d. Exclusion of life insurance proceeds received as the result of death.e. Exclusion to the employee on the employer?s payments of health insurance premiums for employees.f. Real property taxes on the taxpayer?s residence.6. LO.2 Describe the tax formula for the AMT.7. LO.2 An AMT results if the tentative AMT exceeds the regular income tax liability. But what happens if the regular income tax liability exceeds the tentative AMT? Does a negativeAMT develop to the extent of this excess that can be carried to other years? Explain.8. LO.2 Andrew and Mabel, unrelated individuals, use the same Federal income tax filing status (head of household). However, Mabel?s AMT exemption amount is $51,900, whileAndrew?s is $0. Explain.9. LO.2 Alfred is single, and his AMTI of $350,000 consists of the following. What tax rates are applicable in calculating Alfred?s tentative AMT?Ordinary income $250,000Long-term capital gains 70,000Qualified dividends 30,00010. LO.2 Can any nonrefundable credits, other than the foreign tax credit, reduce the regular income tax liability below the amount of an individual?s tentative AMT?11. LO.3 Tad, who owns and operates a business, acquired machinery and placed it in service in June 1998. The machinery is 10-year property. Does Tad make an AMT adjustment in 1998 and/or 2013 for the depreciation on the machinery? Explain.12. LO.3 Nell recently purchased a weekly newspaper that has been generating losses. Nell is convinced that she can turn the newspaper around with a new editorial style and increased circulation expenditures. What are the tax benefits and potential income tax pitfalls, if any, of increasing the circulation expenses?13. LO.3, 8 How can an individual taxpayer avoid having an AMT adjustment for mining exploration and development costs?14. LO.3 Certain taxpayers have the option of using either the percentage of completion method or the completed contract method for reporting gross income from long-term contracts. What effect could the AMT have on this decision?15. LO.3 If the stock received under an incentive stock option (ISO) is sold in the year of exercise, there is no AMT adjustment. If the stock is sold in a later year, there will be anAMT adjustment then. Evaluate the validity of these statements.


Paper#39628 | Written in 18-Jul-2015

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