CHAPTER3 SUPPLEMENTAL-LECTURE1(1).doc - CHAPTER 3 SUPPLEMENTAL ALTERNATIVE MINIMUM TAX AND CERTAIN PENALTY TAXES IMPOSED ON CORPORATIONS(SPECIAL

CHAPTER3 SUPPLEMENTAL-LECTURE1(1).doc - CHAPTER 3...

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CHAPTER 3 SUPPLEMENTAL ALTERNATIVE MINIMUM TAX AND CERTAIN PENALTY TAXES IMPOSED ON CORPORATIONS (SPECIAL SITUATIONS) THE OBJECTIVE OF THIS CHAPTER IS TO ENSURE THAT DOUBLE TAXATION THAT IS INHERENT IN CORPORATIONS IS NOT CIRCUMVENTED THROUGH OTHER MEANS (REPEALED BEGINNING JANUARY 1, 2018 ) I. ALTERNATIVE MINIMUM TAX (AMT) AMT FORMULA FOR CORPORATIONS (1) REGULAR TAXABLE INCOME BEFORE NOL DEDUCTIONS (2) PLUS/MINUS: AMT ADJUSTMENTS (EXCEPT ACE ADJUSTMENT) (3) PLUS: TAX PREFERENCES (4) EQUALS: AMTI BEFORE AMT NOL DEDUCTION AND ACE ADJUSTMENT (5) PLUS/MINUS: ACE ADJUSTMENT (6) EQUALS: AMTI BEFORE AMT NOL DEDUCTION (7) MINUS: AMT NOL DEDUCTION (LIMITED TO 90%) (8) EQUALS: ALTERNATIVE MINIMUM TAXABLE INCOME (AMTI) (9) MINUS: EXEMPTION
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(10) EQUALS: ALTERNATIVE MINIMUM TAX BASE (11) TIMES: 20% RATE (12) EQUALS: AMT BEFORE AMT FOREIGN TAX CREDIT (13) MINUS: AMT FOREIGN TAX CREDIT (POSSIBLY LIMITED TO 90%) (14) EQUALS: TENTATIVE MINIMUM TAX (15) MINUS: REGULAR TAX LIABILITY BEFORE CREDITS MINUS REGULAR FOREIGN TAX CREDIT (16) EQUALS: ALTERNATIVE MINIMUM TAX (AMT) (FORM 4626) OBJECTIVE IS TO ENSURE THAT CORPORATIONS PAY A MINIMUM AMOUNT OF INCOME TAXES BEGINNING JANUARY 1, 1998, AMT NO LONGER APPLIES TO SMALL CORPORATIONS (AVERAGE GROSS RECEIPTS OF $7,500,000 OR LESS FOR LAST THREE (3) YEARS) (OR LAST TWO (2) YEARS FOR THE THIRD YEAR) ($5,000,000 IF THE CORPORATION HAS ONLY ONE (1) PRIOR YEAR – THUS, IF THE CORPORATION HAD GROSS RECEIPTS OF $5,000,000 OR LESS ITS FIRST YEAR, THE SECOND YEAR IS EXEMPT) (ALL CORPORATIONS ARE EXEMPT IN FIRST
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YEAR OF EXISTENCE REGARDLESS OF INCOME LEVEL) (ONCE A CORPORATION LOSES ITS SMALL CORPORATION PROTECTION, THE CORPORATION IS LIABLE FOR THE ALTERNATIVE MINIMUM TAX FOR THAT YEAR AND FUTURE YEARS) (1) STARTING POINT – REGULAR TAXABLE INCOME (2) LINE 2 - AMT ADJUSTMENTS ( PLUS OR MINUS/(POSITIVE OR NEGATIVE ) ) (1) EXCESS DEPRECIATION ON PROPERTY PLACED IN SERVICE AFTER 1986 (THE EXCESS DEPRECIATION OCCURS BECAUSE OF DIFFERENT USEFUL LIVES (AND DEPRECIATION RATES) FOR REGULAR TAXATION AND ALTERNATIVE MINIMUM TAXATION AS FOLLOWS:
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REAL PROPERTY USEFUL LIFE REGULAR TAXATION 27.5, 31.5, 39 YEARS ALTERNATIVE MINIMUM TAXATION 40 YEARS PERSONAL PROPERTY DEPRECIATION RATE REGULAR TAXATION 200% DECLINING BALANCE (MOSTLY) ALTERNATIVE MINIMUM 150% DECLINING TAXATION BALANCE THUS, IN SOME (EARLIER) YEARS, REGULAR TAXATION WILL YIELD HIGHER DEPRECIATION (CREATING A POSITIVE ADJUSTMENT) AND IN SOME (LATER) YEARS ALTERNATIVE MINIMUM TAXATION WILL YIELD HIGHER DEPRECIATION (CREATING A NEGATIVE ADJUSTMENT) THESE ADJUSTMENTS ARE SIMPLY
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