14-1 ©2009 pearson education, inc. publishing as prentice hall
TRANSCRIPT
14-1©2009 Pearson Education, Inc. Publishing as Prentice Hall
14-2
SPECIAL TAX COMP SPECIAL TAX COMP METHODS, CREDITS, & METHODS, CREDITS, &
PAYMENTPAYMENT (1 of 2) (1 of 2)
Alternative minimum taxSelf-employment taxOverview of tax creditsPersonal tax creditsForeign tax creditGeneral business credits
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SPECIAL TAX COMP SPECIAL TAX COMP METHODS, CREDITS, & METHODS, CREDITS, &
PAYMENTPAYMENT (2 of 2) (2 of 2)
Refundable creditsPayment of taxesTax planning considerationsCompliance and procedural
considerations
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Alternative Minimum TaxAlternative Minimum Tax
AMT computationAMT preference itemsAMT adjustmentsAMT credits
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AMT Computation(1 of 3)
Taxable income before NOL+ Tax preference items+ Personal & dependency exemptions+ Standard deduction (if applicable)+/- Adjustments to taxable income
Alternative minimum taxable income
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AMT Computation(2 of 3)
Alternative minimum taxable income- AMT exemption
Alternative minimum tax basex Tax rate 26% on 1st $175K, 28% on excess Tentative minimum tax- Nonrefundable personal credits- Regular tax AMT due (if any)
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AMT Computation(3 of 3)
AMT exemption$66,250 MFJ, $44,350 single,
$33,125 MFSReduced by 25% of AMTI in excess
of threshold amount$150,000 MFJ, $112,500 single, &
$75,000 MFS
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AMT Preference Items
Includes excess of accelerated depreciation over S/L depreciation
Tax-exempt interest on certain private activity bonds
Excess % depletion over adjusted basis of property
Exclusion of gain on sale of certain small business stock under §1202
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AMT Adjustments(1 of 3)
AMT itemized deductionsCasualty & theft loss in excess 10% of AGICharitable contributionsMedical expenses in excess of 10% of AGIQualified housing interestEstate tax deduction on IRDGambling losses
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AMT Adjustments(2 of 3)
Timing differencesFor personal property placed in service
after 1998Difference between MACRS deduction and
amount determined by using 150% DBFor real property placed in service after
1986 and before 1999Difference between actual MACRS and SL
using 40-yr useful life
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AMT Adjustments(3 of 3)
Timing differences (continued)Incentive Stock Options (ISOs)
Difference between FMV of stock and price paid for it
R&E expendituresDifference between amount deducted
and amount deduction if R&E capitalized and amortized over 10 years
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AMT Credits
AMT foreign tax creditChild and dependent care creditCredit for elderly and totally
disabledAdoption expense creditChild tax creditHope and lifetime learning credits
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Self-Employment (SE) TaxSelf-Employment (SE) Tax(1 of 3)(1 of 3)
Individuals subject to SE tax on amount of net earnings from self-employment
Computing the taxNet earnings self-employment earnings
≥$400 subject to SE taxMultiply SE income x 92.35% (100% -
7.65%) to determine net SE earnings
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Self-Employment (SE) TaxSelf-Employment (SE) Tax(2 of 3)(2 of 3)
Computing SE tax (continued)SE tax 15.3%
Consist of 12.4% OASDI and 2.9% Medicare
OASDI for 2008 is $102,000No limit on the Medicare portion of SE
tax
½ of SE tax deductible for AGI
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Self-Employment (SE) TaxSelf-Employment (SE) Tax(3 of 3)(3 of 3)
Self-employment incomeNet earnings from sole
proprietorshipDirector’s feesTaxable research grantDistributive share of partnership
income plus guaranteed payments
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Overview of Tax CreditsOverview of Tax Credits
Use and importance of tax creditsUsed by Federal gov’t for tax policy
Value of a credit vs. a deductionCredit is $ for $ reduction of tax liabilityDeduction x MTR = tax savings
Classification of creditsRefundableNonrefundable
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Nonrefundable Personal Nonrefundable Personal Tax Credits Tax Credits (1 of 6)(1 of 6)
Child tax credit$1,000 for each qualifying child < 17Phased out at $50 per $1,000 over
threshold amount$110K MFJ; $75K single; $55K MFS
Child and dependent care credit20% - 35% of eligible care expenses to
enable taxpayer to be employedUp to $3K ($6K) expenses for 1 (2+) child
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Nonrefundable Personal Nonrefundable Personal Tax Credits Tax Credits (2 of 6)(2 of 6)
Tax credit for the elderly and disabledFor low-income individuals ≥ 65 who
retired due to permanent total disability15% of $5K ($7.5K if both spouses ≥ 65)
reduced by certain amountsAdoption credit
Up to $11,650 credit in adoption yearPhased out between $174,730 – 214,730
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Nonrefundable Personal Nonrefundable Personal Tax Credits Tax Credits (3 of 6)(3 of 6)
Hope scholarship creditUp to $1,800 credit for tuition and
related expenses per studentNot books or room and board
Available for 1st two years per student100% of 1st $1,200 plus 50% 2nd $1,200Must be half-time studentEligible expenses reduced by amounts
received under other Code sections
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Nonrefundable Personal Nonrefundable Personal Tax Credits Tax Credits (4 of 6)(4 of 6)
Hope scholarship credit (continued)Phase out between $96K-$116K MFJ;
$48K-$58K for other taxpayersLifetime learning credit
Less restrictive than Hope credit20% of 1st $10K of eligible expenses
NOT per studentOther rules same as Hope credit
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Nonrefundable Personal Nonrefundable Personal Tax Credits Tax Credits (5 of 6)(5 of 6)
Residential energy credits$500 lifetime credit
10% of cost of qualified energy efficiency improvements plus
Residential energy property expenditures for principal residence
Residential energy efficiency creditOnly for 2006 and 200730% up to $2,000 on solar water heaters,
photovoltaic property, and fuel cell property
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Nonrefundable Personal Nonrefundable Personal Tax Credits Tax Credits (6 of 6)(6 of 6)
Qualified retirement savings contributions creditCredit for lower-income taxpayersCredit in addition to exclusion or
deduction otherwise allowableNonrefundable personal credits limit
Nonrefundable credits cannot exceed regular tax liability plus TMT for year
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Foreign Tax CreditForeign Tax Credit(1 of 2)(1 of 2)
U.S. citizens, resident aliens, and U.S. corps taxed on worldwide income
FTC permits U.S. citizens and residents to avoid double taxation
Directly reduces U.S. tax liability
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Foreign Tax CreditForeign Tax Credit(2 of 2)(2 of 2)
FTC limited to lesser of Foreign tax actually paid OR
foreign taxable income U.S. taxworldwide taxable income x liability
Unused creditsCarryback 1 year, thenCarryforward 10 years
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General Business CreditsGeneral Business Credits(1 of 5)(1 of 5)
Combined for purposes of computing overall dollar limitationExcess credits carried back 1 year and
forward 20 years applied on FIFO methodLimited to net income tax less greater of
TMT or 25% of net regular tax liability in excess of
$25K
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General Business CreditsGeneral Business Credits(2 of 5)(2 of 5)
Tax credit for rehabilitation expenditures10% for structures placed in service before
1936 and 20% if certified historic structures
Business energy credits10% of energy-conserving properties30% for solar and fuel cell property
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General Business CreditsGeneral Business Credits(3 of 5)(3 of 5)
Credit for employer-provided child care25% of qualified child care expenses plus10% of child care resources and referral
expendituresMax $150K credit
Cannot claim both credit and deduction
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General Business CreditsGeneral Business Credits(4 of 5)(4 of 5)
Work opportunity credit40% of 1st $6K of qualified wages paid to
employees hired from 1 of 9 targeted groups
Disabled access creditFor small businesses
Gross receipts < $1M or have < 30 employees50% of eligible expenses in excess of
$250 up to $10,250
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General Business CreditsGeneral Business Credits(5 of 5)(5 of 5)
Credit for research activities20% of incremental expenditures plus20% of basic research expenditures20% of energy research expensesNo deduction for creditable
expenditures
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Refundable CreditsRefundable CreditsEarned Income CreditEarned Income Credit
Eligibility rules:Earned income and AGI thresholds
metPrincipal place of abode in U.S. for >
½ of tax yearIndividual between ages 25 and 64Individual not a dependent of another
taxpayer for tax year
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Payment of TaxesPayment of TaxesWithholding of Taxes (1 of 2)Withholding of Taxes (1 of 2)
Withholding of taxesEmployers required to withhold
federal income taxes and FICA tax from employee compensation
Special rules provided for more than 1 employer during same year
Exemptions for certain employment activities such as ministers
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Payment of TaxesPayment of TaxesWithholding of Taxes (2 of 2)Withholding of Taxes (2 of 2)
Withholding allowances and methodsEvery employee must file an
Employee’s Withholding Allowance Certificate Form W-4
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Payment of TaxesPayment of TaxesEstimated Tax Payments (1 of 2)Estimated Tax Payments (1 of 2)
Estimated tax paymentsCalendar year taxpayers quarterly
payments due April 15, June 15, Sept 15 of the current year, and January 15 of following year
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Payment of TaxesPayment of TaxesEstimated Tax Payments (2 of 2)Estimated Tax Payments (2 of 2)
Required estimated tax paymentsAvoid underpmt of estimated tax penalty90% of current tax liability, or 100% of last year’s liability
110% if AGI > $150KNo penalty if underwitheld by <$1K or
individual had $0 tax liability in prior year
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Tax Planning Tax Planning ConsiderationsConsiderations
Avoiding Alternative Minimum TaxAvoiding the underpayment
penalty for estimated taxCash-flow considerationsUse of general business creditForeign tax credits and foreign
earned income exclusion
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Compliance and Compliance and Procedural Procedural
ConsiderationsConsiderations AMT filing procedures
Form 6251 or 4626 Withholding and estimated payments
Form W-2 and 1040ES General Business Credit
Form 3800 Personal tax credits
Schedules EIC, Schedule R, Form 1116, Form 2441, Form 8863
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