Week 1 Ch 15-17

Week 1 Ch 15-17 - CHAPTER 15 ALTERNATIVE MINIMUM TAX...

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CHAPTER 15 ALTERNATIVE MINIMUM TAX LECTURE NOTES INDIVIDUAL ALTERNATIVE MINIMUM TAX (AMT) 1. Purpose of AMT . The purpose of the AMT is to accomplish a more equitable distribution of the tax burden among taxpayers . 2. Statistical data compiled by the Department of the Treasury revealed that some taxpayers with large economic incomes were able to minimize or even avoid the payment of income tax by taking advantage of the various tax incentives Congress had enacted. a. Many of the favorable treatments allowed for computing the regular income tax liability are disallowed for computing the AMT . b. The AMT has been referred to as a “tax on loopholes .” OVERVIEW OF THE AMT COMPUTATION 3. Direct versus Indirect Approach for Calculating Alternative Minimum Tax. a.Direct approach . The AMT is actually a separate tax system with its own provisions for calculating income, deductions, and credits. Therefore , the AMT could be calculated using the direct approach with the following model . Gross income computed by applying the AMT rules Minus: Deductions computed by applying the AMT rules Equals: AMT before tax preferences Plus: Tax preferences Equals: Alternative minimum taxable income (AMTI) Minus: Exemption Equals: Alternative minimum tax base Times: AMT rates Equals: Tentative minimum tax (before credits) Minus: AMT credits Equals: Tentative AMT 1
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The taxpayer could then compare the regular income tax liability (before credits other than the foreign tax credit) with the tentative AMT and pay the larger of the two. b. Indirect approach . Both the Code and the tax forms adopt the indirect approach 4. The AMT model can be presented first as the basic AMT model and then as the com- plete AMT model . a. Basic AMT model . Regular taxable income Plus: Positive AMT adjustments Minus: Negative AMT adjustments Equals: Taxable income after AMT adjustments Plus: Tax preferences (always a positive amount) Equals: Alternative minimum taxable income (AMTI) Minus: Exemption Equals: Alternative minimum tax base Times: AMT rates Equals: Tentative minimum tax Minus: Regular income tax liability Equals: Alternative minimum tax (if amount is positive) b. Complete AMT model Regular taxable income Plus: Regular income tax NOL Plus: Positive AMT adjustments Minus: Negative AMT adjustments Plus: Tax preferences (always a positive amount) Equals: Alternative minimum taxable income (before ATNOLD) Minus: ATNOLD (cannot exceed 90% of AMTI before deduction of ATNOLD) Equals: Alternative minimum taxable income (AMTI) Minus: Exemption Equals: Alternative minimum tax base Times: AMT rates (26% on first $175,000 or $87,500 if married-filing separately, 28% thereafter) Equals: Tentative minimum tax before AMT foreign tax credit (AMT FTC) Minus: AMT FTC * Equals: Tentative minimum tax Minus: Regular income tax liability before credits (reduced by allowable regular income tax FTC) 2
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Equals: Alternative minimum tax (if amount is positive) *Previously there existed a 90% limit on the AMT foreign tax credit [§ 59(a)(2)]. Under the American Jobs Creation Act of 2004, this limitation has been deleted.
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This note was uploaded on 04/01/2011 for the course ACCT 360 taught by Professor Mill during the Spring '11 term at Davenport.

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Week 1 Ch 15-17 - CHAPTER 15 ALTERNATIVE MINIMUM TAX...

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