Unformatted text preview: Additional Taxes, Tax Credits and Payments Kiddie Tax Unearned income in excess of $1,800 (2008) taxed at higher parent's marginal rate. "kiddie" rises to 19 in 2008; 24 if fulltime student w/earned income<1/2 support AMT Formula Regular Taxable Income +/ AMT adjustments + AMT preferences Alternative Minimum Taxable Income (AMTI) ` Exemption Alternative Minimum Tax base X AMT rate(s) Tentative Minimum Tax `Regular Tax Alternative Minimum Tax 4. Which one of the following must be done before the AMT calculations can be made? a. The taxpayer's current taxable income must be calculated. b. The taxpayer's Federal tax liability for regular tax purposes must be calculated. c. AMT adjustments and tax preferences must be identified. d. a and b. e. a, b, and c. Additional Flashpoints NOLs different for regular tax and AMT Incentive Stock Options (ISOs) in 1st year the rights in stock vest; affects AMT stock basis Depreciation: must use ADS; affects adjusted basis for AMT Medical amount exceeding 10% AGI Interest on private activity bonds AMT now allows foreign tax credit and certain other credits Passive Activity Losses Exemptions 2010: $72,450 MFJ; $47,450 single/HOH 25% Phaseout if AMTI exceeds $112,500 single/HOH, $150,000 MFJ 2011: $74,450MFJ; $48,450 single/HOH: tuition and dependent care credits can offset this year, as can CTC AMT Rates 26%, 1st $175,000 28% on excess over $175,000 Capital gains retain 15%, 5% rates AMT Credit AMT generates a credit carried forward and used to offset future excess of regular tax over Tentative Minimum Tax, but not below Tentative Minimum Tax Example
'01 Reg. Tax $12k Tent. Min. $10k Amt due? $12k '02 $13k $16k '03 $14k $12k `04 $15 $10 $16k $12k $14 6. Which one of the following does not describe the minimum tax credit? a. Indefinite carryforward b. Offsets any future minimum tax liability c. Offsets any future regular tax liability d. Referred to as the adjusted net minimum tax Independent Contractor v. Employee Question of who has more control over work Result is more deductible expenses if contractor, but also selfemployment taxes due by contractor. Employer does not have to pay employee fringes. SelfEmployment Tax Pay both employer and employee's portion Deduct employee's portion FOR AGI. Refundable v. Nonrefundable Credits A taxpayer, who has no withholdings and has made no estimated tax payments has a tax liability of $350 before tax credits of $450. How much paid owed to/by the taxpayer this year? Answer is depend 8. Which one of the following is not an example of a refundable credit? a. The credit for federal income tax withheld on salary b. Earned income credit c. Credit for the elderly, or permanently and totally disabled d. Quarterly estimated tax payments e. Credit for Federal tax on gasoline and special fuels Child Tax Credit $1,000 per qualifying child under age 17, US citizen, claimed as a dependent Phaseout of $50/$1,000 for AGI>$110,000 MFJ Partially refundable in excess of $3,000 if total allowable credit > total tax liability TV Tax 7th Heaven Of their 7 children, a pastor and his wife still have 5 at home. Compute their children tax credit Dependent Care Expenses To allow parents to work Child under 13 or incapacitated Day care or nanny (including adult relative) Up to $3,000, 1 child; $6,000, 2+ children or lowest parent's income Sliding scale (2035%) credit %, does not go to $0 No double dipping of costs Fulltime student earns $250 $500/mo. TV Tax The Brady Bunch Mike and Carol Brady have 6 children and a housekeeper (Alice) in their household Under what circumstances can they claim a credit for payments for Alice? 7. Which one of the following child or dependent care expenses qualifies as an employmentrelated expense? a. Payments to a fulltime nursing home for your dependent motherinlaw who is not mentally nor physically incapacitated b. Payments for transportation to and from nursery school c. Payments to a lawn service when a child is cared for in the home d. Payments to a nursery school for your preschool children e. None of the above TV Tax Credits Max Sheffield hires Fran Fine to care for his three children: Margaret, Brighton and Gracie. Can Mr. Sheffield claim credit for dependent care expenses? Education Tax Credits America Opportunity Tax Credit: Up to $2,500/year/student (2010), 1st 4 years of posthigh school Is 100% 1st 2000; 25% 2nd 2000 Now includes books and materials 40% is refundable Lifetime Learning: 20% of 1st $10,000/year/taxpayer, towards degree or maintain/improve existing skills Highincome phaseout starting at $160,000 MFJ (2010, indexed) Making Work Pay Credit Lesser of 6.2% of earned income or $400. For 2009 and 2010 MAGI less than or equal to 75,000($150,00 MFJ) Adjustment to w/n w/[email protected] Earned Income Credit Refundable credit to lowincome individual taxpayer (not GBC) Refunds employee's FICA for impoverished workers; more is worker has 1 or 2/+ qualifying children. Eg if >3 children 45%of 1st $12,570 Income can be >$43,000 in 2009 w/ children (credit =>$11,340) If no children, t/p must be 2564 and not claimed as a dependent on another's return Foreign Tax Credit Lower of US tax on foreign income or foreign taxes paid on foreign income May itemize deduction instead of taking credit May exclude income instead of taking credit US tax paid on foreign income = Foreign source income/worldwide income * US tax Retirement Plan Contributions 50% of up to $2,000 towards retirement In addition to deduction or exclusion Phasedout for uppermiddle class (AGIs up to $53,000 MFJ 2008) New Health Care Provisions Refundable tax credits for taxpayers to cover cost of health insurance Treasury will pay premium assistance credit directly to insurance plan Credit available for households w/income between 100% and 400% poverty level. Available for years after 12/31/2013 Other Personal Credits Adoption credit First Time Home Buyer Credit Under 18 or unable to care for self; Credit taken when adoption is finalized; Phaseout for high income taxpayers ($182,520$222,520 MFJ, 2010, indexed) Energy Saving Home Improvements Expires after 12/31/2010 Includes installation of highefficiency skylights, window, outside doors and furnaces, water heaters & central air Check also for credits on solar panels and wind generation. Small Business Tax Credit for Health Insurance IRC 38, GBC. 25 or fewer or employees w/ annual wages less than $40,000. Credit of up to 50% of nonelective contributions If 10 or fewer employees and avg. wages less than $20,000, 100% credit. Taxexempt orgs get 35% credit Small Employer Tax Credit 35% credit for cost of premiums paid toward health insurance coverage Small employer must contribute > 50% of premium costs New HIRE Act Hire unemployed workers from 2/3/2010 12/31/2010 Qualify for 6.2% payroll tax incentive (employer's share) If retained for a year, each new worker=>$1,000 business tax credit New! Worker Retention Credit Lesser of $1,000 or 6.2% of retained worker's 52week wages. Also, Payroll tax forgiveness on workers hired between March 18, 2010 and Jan. 1, 2011, for new jobs or qualified replacements. General Business Credit Aggregation, if necessary, of several smaller credits Used if more than one of the smaller credits exists Unused credits carried back 1 year, carried forward 20 years Use oldest first, then current yr cr. Some Specific GBC Credits Work Opportunity credit For employing exfelons, highrisk youths, food stamp recipients, veterans, summer youth employees, welfare recipients; 25% or 40% of first $3,000 $6,000 wages/certified employee in first year of employment Reduces wage expense deduction Welfare to Work Credit 35% of 1st $10,000/longterm (18 mos) welfare recipient in 1st yr of employment; 50% of 1st $10,000 in 2nd yr of employment Reduces wage expense deduction Cannot double dip w/ Work Opportunity Credit Rehabilitation Expenditures Research Activities Other GBCs Low Income Housing 20% of qualifying expenditures in excess of base amount
Credit (from table) based on qualified basis depending on # of units rented to lowincome tenants; taken over 10 years Small Employer Pension Plan Startup Costs Employer Provided Child Care 23. Which one of the following is a component of the General Business Credit? a. The alcohol fuels credit b. The disabled individual access credit c. The rehabilitation investment credit d. The business energy investment credit e. All of the above Withholding Employer withholds FICA, FIT Excess FICA withholding refundable to individual Matches FICA, Must pay over at least quarterly, but usually within 3 days of withholding FICA is first 7.65% of $106,800 (2009/2010); 1.45% over $106,800 Backup Withholding 28% of amount when taxpayer refuses to give EIN to bank or business Estimated Payments Selfemployed individuals owing > $1,000 or have $400 in selfemployment earnings must make quarterly estimated payments Due dates are April 15, June 15, September 15, and January 15 $400 in SE triggers selfemployment tax in addition to federal income tax Penalty for Underwithholding Must pay 90% of current year's tax or 90% of last year's tax to avoid penalty in 2009 If AGI > $150,000, 100% becomes 110% ...
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- Spring '09
- Taxes, Taxation in the United States, tax credit, tentative minimum tax, minimum tax