Income Tax Chapter 8 EXAM WITH COMPLETE SOLUTIONS

Income Tax Chapter 8 EXAM WITH COMPLETE SOLUTIONS The tax rate schedules are set up to tax lower levels of income at higher tax rates than higher levels of income. - ANSWERFALSE - lower levels of income are taxed at lower tax rates. Tax rate schedules are provided for use by (relatively) higher income taxpayers while the tax tables are provided for use by (relatively) lower income taxpayers. - ANSWERTRUE All capital gains are taxed at preferential rates. - ANSWERFALSE - Only long-term capital gains are taxed at preferential rates. Long-term capital gains, dividends, and taxable interest income are all taxed at preferential rates. - ANSWERFALSE - only long-term capital gains and dividends are taxed at preferential rates. Generally, income from an active trade or business is subject to the 3.8% Medicare contribution tax. - ANSWERFALSE - the 3.8% Medicare contribution tax is imposed on net investment income. In certain circumstances a child with very little income may have their income taxed at the parents' marginal tax rate. - ANSWERTRUE The kiddie tax does not apply to children over 24 years old at the end of the tax year. - ANSWERTRUE The alternative minimum tax system requires taxpayers to apply an alternative tax rate on the regular income tax base to determine the amount of the alternative minimum tax. - ANSWERFALSE - Taxpayers make several "plus" and "minus" adjustments to regular taxable income to compute alternative minimum taxable income (AMTI). Regular taxable income is the starting point for determining the alternative minimum tax. - ANSWERTRUE