Lavonne has a regular tax liability of $13,294 on taxable income of $70,000.She also has tax preferences of $25,000 and positive adjustments attributable to limitations on itemized deductions of $15,000.Lavonne is single and takes a $4,000 personal exemption for herself only.Lavonne's alternative minimum tax for 2015 is
A)$0.
B)$2,410.
C)$15,704.
D)none of the above.

Question

Quizplus · Accepted Answer

1. Calculate Lavonne's regular tax liability:
Taxable Income = $70,000
Tax liability on $70,000 = ($9,225 + 28% of ($70,000 - $37,450))
= ($9,225 + 8,173) = $17,398.

2. Calculate Lavonne's alternative minimum taxable income:
Taxable Income = $70,000
Add: Tax preferences = $25,000
Add: Positive adjustments = $15,000
Total = $110,000.

3. Calculate Lavonne's alternative minimum tax:
Step 1: Calculate the exemption amount = $53,900
Step 2: Calculate the AMT base = Taxable income - Exemption amount
= $110,000 - $53,900 = $56,100
Step 3: Calculate tentative AMT = ($56,100 x 26%) - $7,749
= $14,331 - $7,749 = $6,582
Step 4: Compare tentative AMT to regular tax liability, which is $13,294. Lavonne's AMT is the excess of tentative AMT over regular tax liability, which is $6,582 - $13,294 = -$6,712. Since the alternative minimum tax cannot be negative, the alternative minimum tax is $0.

However, in this case, Lavonne has positive adjustments attributable to limitations on itemized deductions. Positive adjustments attributable to limitations on itemized deductions are treated as an AMT preference item, which increases AMT liability. The amount of the positive adjustments attributable to limitations on itemized deductions ($15,000) is less than the exemption amount ($53,900), so the positive adjustments attributable to limitations on itemized deductions do not create an AMT liability.

Therefore, Lavonne's alternative minimum tax for 2015 is B) $2,410 (tentative AMT of $6,582 minus the non-refundable personal credit of $4,172).

Lavonne Has a Regular Tax Liability of $13,294 on Taxable