1040 Tax Computation - AMT

Question 1

Adjustments right after Table Income and before Tax Preferences to arrive at AMIT

Answer 1

“I see 3 D’s and a sore pee-pee” = add back TO the taxable income

I = Installment method on sales
S = State income tax, real estate tax, personal property tax
E = Excess of % of Completion income vs Completed Contract
E = Exemptions and Standard deduction

= 3 D’s => SORE PP

D = Difference b/w 200% MACRS and 150% MACRS on Personal Property

D = Difference in Stock Options FMV and amount paid

D = Difference b/w Real Estate purchased pre-1999 Depreciation and 40-yr Straight Line depreciation

Question 2

Individual Tax Preferences Mnemonic

Answer 2

PPP =

Private Activity Bonds
Personal and Real property depreciation
Percent of depletion excess over adjusted basis

Question 3

How do we get to AMIT?

Answer 3

Taxable Income
+I see 3 D’s and a sore pee-pee adjustments
+PPP = tax preferences

= AMIT

Question 4

How is excess AMT paid treated?

Answer 4

Carry forward indefinitely and apply against future REGULAR tax, not future AMT

Question 5

The credit for the prior year alternative minimum tax liability may be applied against regular tax or AMT?

Answer 5

Regular tax only. Never ever apply the AMT credit against AMT.

Question 6

“An employee who has had social security tax withheld in an amount greater than the maximum for a particular year, may claim

a. Such excess as either a credit or an itemized deduction, at the election of the employee, if that excess resulted from correct withholding by two or more employers.
b. Reimbursement of such excess from his employers, if that excess resulted from correct withholding by two or more employers.
c. The excess as a credit against income tax, if that excess resulted from correct withholding by two or more employers.
d. The excess as a credit against income tax, if that excess was withheld by one employer.”

(Whittington 549)

Whittington, O. Ray. Wiley CPAexcel Exam Review 2014 Study Guide, Regulation, 11th Edition. John Wiley & Sons P&T, 11/2013. VitalBook file.

Answer 6

Answer is d - basically, the employee withheld more than the maximum for social security taxes. Basically overpaid.

Overpayment is credited against income tax (nonrefundable) only if the excess is the result of CORRECT withholding by two or more employers, e.g. changed jobs and/or took on more jobs.

D is the wrong choice b/c if the employer made an mistake by withholding too much from the employee’s paycheck, then it is on the employer to reimburse the employee for taking out too much for social security taxes.