2010_CCH_Essentials_Chapter_12

2010_CCH_Essentials_Chapter_12 - CCH Essentials of Federal...

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Unformatted text preview: CCH Essentials of Federal Income Taxation Chapter 12 Chapter NOL, AMT, and Business Tax NOL, Credits Credits ©2009 CCH. All Rights Reserved. 4025 West Peterson Ave. Chicago, IL 60646-6085 www.CCHGroup.com Calculating NOL In computing the NOL, the following adjustments are made to negative taxable income: • • • • The deduction for personal and dependency exemptions The is added back is A net capital loss is not deductible. Nonbusiness capital net losses can offset only nonbusiness capital gains losses The NOL of a preceding or a succeeding year cannot be The deducted in computing an NOL for the current year deducted Nonbusiness deductions in excess of nonbusiness income Nonbusiness plus net nonbusiness capital gains are added back plus Chapter 12 CCH Essentials of Federal Income Taxation 2 of 17 Alternative Minimum Tax + – – = – = × = – = Chapter 12 Taxable income before the exemption Taxable deduction and standard deduction (if used) deduction Tax preferences and positive adjustments Negative adjustments Allowed net operating losses Allowed Alternative minimum taxable income Allowable exemption Amount subject to tax (AMT Base) AMT tax rate Tentative minimum tax Regular income tax Regular AMT (if positive) CCH Essentials of Federal Income Taxation 3 of 17 Preferences and Adjustments • • • Recovery of costs Passive losses Tax-exempt and excluded income Chapter 12 CCH Essentials of Federal Income Taxation 4 of 17 AMT Itemized Deductions For purposes of AMT, itemized deductions are adjusted for: • Taxes (other than the deduction for sales tax on Taxes the purchase of new motor vehicles) the • Miscellaneous deductions subject to the 2% AGI Miscellaneous limit limit • Medical expenses (under AMT these are allowed Medical to the extent that they exceed 10% of AGI) to • Certain home equity mortgage interest Chapter 12 CCH Essentials of Federal Income Taxation 5 of 17 AMT Exemption No personal exemptions and no standard deduction may be deducted in computing AMTI. Instead, after computing AMTI, a special exemption assures that most lower- and middle-income taxpayers will not be subject to the AMT. The exemption varies by taxpayer filing status. However, the exemption is phased out after the AMTI reaches certain levels. levels. Chapter 12 CCH Essentials of Federal Income Taxation 6 of 17 AMT Rates and Credits Tax Rate wo-tiered, • A ttwo-tiered, graduated rate schedule is used to compute the AMT. used Minimum Tax Credit • The portion of the AMT caused by The adjustment and preference timing differences creates the minimum tax credit. differences Chapter 12 CCH Essentials of Federal Income Taxation 7 of 17 Investment Tax Credit • • Business energy investment credit Credit for rehabilitation expenditures Type of Property Certified historical structures (both nonresidential and residential) Nonresidential and residential buildings originally placed in service before 1936 Credit 20% 10% Chapter 12 CCH Essentials of Federal Income Taxation 8 of 17 Work Opportunity Credit • • • To qualify, the individuals must be hired in a specified To time frame (to be designated each year) time Individuals must be from one of the targeted groups The credit equals 40% of qualified first-year wages (or The 40% of qualified first year wages and 50% of qualified second year wages for long-term family assistance recipients) recipients) The percentage drops to 25% for employees who work at The least 120 hours, but less than 400 hours least Employers who claim this credit must reduce their wage Employers expense deduction by the amount of the credit claimed expense Chapter 12 CCH Essentials of Federal Income Taxation 9 of 17 • • Low-Income Housing Credit • • • • This credit is available to certain owners of residential This property who provide low-income housing property The credit may be taken each year for a period of 10 The years years The IRS sets the credit rate monthly to reflect changes The in the average federal rate (AFR); however, once determined, the rate remains constant for that property determined, There are a number of special requirements and There interrelationships with other federal programs interrelationships Chapter 12 CCH Essentials of Federal Income Taxation 10 of 17 Disabled Access Credit • • This nonrefundable credit is an incentive to small This businesses to make themselves more accessible to disabled persons disabled A business qualifies for the credit if: – The business has gross receipts of ≤ $1 million, or The or – The business employed 30 or fewer full-time The employees in the previous year employees The credit equals 50% of the eligible expenditures that The exceed $250 but are not over $10,250 exceed Chapter 12 CCH Essentials of Federal Income Taxation 11 of 17 • FICA Tax Credit Food and beverage establishments are allowed a tax credit for the employer’s FICA tax contribution on qualifying employee cash tips. These are tips the employee reports to the employer that are in excess of the amount required to satisfy the federal minimum wage requirements. No wage deduction can be taken on any amount used in computing the credit calculation. credit Chapter 12 CCH Essentials of Federal Income Taxation 12 of 17 Empowerment Zone Employment Credit Employers whose business is located in designated empowerment zones may receive a 20% tax credit on the first $15,000 of wages paid to qualified employees. Qualified employees are individuals who live within the empowerment zone. The amount of the credit claimed reduces the employer’s wage expense deduction. Wages of an employee who is in one of the eight targeted groups for the work opportunity credit cannot be used in computing the empowerment zone credit. computing Chapter 12 CCH Essentials of Federal Income Taxation 13 of 17 Renewal Community Zone Renewal Employment Credit Employment Employers whose business is located in designated renewal community zone may receive a 15% tax credit on the first $10,000 of wages paid to qualified employees. Qualified employees are individuals who live within the renewal community zone. The amount of the credit claimed reduces the employer’s wage expense deduction. Wages of an employee who is in one of the targeted groups for the work opportunity credit cannot be used in computing this credit. computing Chapter 12 CCH Essentials of Federal Income Taxation 14 of 17 Employer-Provided Child Care Credit • • • The credit equals the sum of (i) 25% of qualified The sum child care expenses and (ii) 10% of qualified child care resources or referral expenses care The maximum annual credit is $150,000 Qualified child care expenses include amounts Qualified paid to acquire or construct property used as part of a qualified child care facility. It also includes costs incurred to operate a qualified child care facility and amounts paid to a qualified child care facility that provides child care services for employees. employees. CCH Essentials of Federal Income Taxation 15 of 17 Chapter 12 Small Employer Pension Plan Small Startup Credit Startup Employers who employed no more than 100 employees earning at least $5,000 in the previous tax year are entitled to take a tax credit equal to 50% of qualified startup costs when they establish a new pension plan for their employees. The credit is limited to $500 in each of the first three years that the pension plan is offered. plan Chapter 12 CCH Essentials of Federal Income Taxation 16 of 17 Tax Penalties Type of Penalty Type Failure to file Failure to pay Negligence or substantial Negligence understatement Substantial valuation misstatement Fraud Frivolous return filing Chapter 12 CCH Essentials of Federal Income Taxation Amount of Penalty 5% of the amount due for each month or partial month late (up to 25%) .5% of the amount due for each month or partial month late (up to 25%) 20% of the tax due 20% 40% of the tax due 15% of the amount due for each month or partial month (up to 75%) $500 17 of 17 ...
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This note was uploaded on 12/02/2010 for the course ECAC 330 taught by Professor Richardcole during the Spring '10 term at UMBC.

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