Prior to the effect of the tax credits,Justin's regular income tax liability is $200,000 and his tentative AMT is $195,000.Justin has the following credits: Calculate Justin's tax liability after credits.
A) $190,000.
B) $194,000.
C) $195,000.
D) $200,000.
E) None of the above.

Question

Prior to the effect of the tax credits,Justin's regular income tax liability is $200,000 and his tentative AMT is $195,000.Justin has the following credits:  Calculate Justin's tax liability after credits.
A) $190,000. 
B) $194,000. 
C) $195,000. 
D) $200,000. 
E) None of the above.

Quizplus · Accepted Answer

Since Justin's regular income tax liability is higher than his tentative AMT ($200,000 > $195,000), he is not subject to AMT. Therefore, he can use his credits to reduce his regular tax liability.

Using the given credit, Justin's total credits amount to $15,000 ($7,500 + $5,000 + $2,500).

His tax liability after credits can be calculated as:

Regular tax liability ($200,000) - Total credits ($15,000) = $185,000

But, since the tentative AMT was initially calculated to be $195,000, Justin would not have paid less than this amount even if he were subject to AMT. Therefore, his tax liability after credits is $194,000 (the tentative AMT amount).

Thus, the correct answer is B.

Prior to the Effect of the Tax Credits,Justin's Regular Income