INDIVIDUAL - TAXES Flashcards
What is AMT?
Alternative Minimum Tax
In addition to the standard tax calculation, there is another calculation that an individual taxpayer may need to make.
The alternative minimum tax (AMT) is the minimum amount of tax that the taxpayer must pay.
If the AMT is larger than the regular tax liability, the taxpayer will need to pay the AMT amount.
AMTI
Alternative Minimum Taxable Income
What Form is the Alternative Minimum Tax calculated on?
Form 6251
AMTI Calculation
Taxable Income
+or- Adjustments
+ Tax Preferences
= AMTI
AMTI
- Exemption Amount
= AMT Base
AMT Base
x Tax Rate (26% & 28%)
= Tentative Minimum Tax before Foreign Tax Credit
Tentative Minimum Tax before Foreign Tax Credit
- Foreign Tax Credit
= Tentative Minimum Tax
AMTI Adjustments
The standard or itemized deduction is added back to taxable income
Many other deductions are added back
Subtract any refund of state and local taxes included in gross income
AMTI Preferences
Preferences are always a positive amount (AKA they increase AMTI).
Tax-exempt interest on private activity municipal bonds
Addition of certain income from incentive stock options
Change in certain passive activity loss deductions
Depletion that is more than the adjusted basis
Deduction for excess intangible drilling costs not amortized over a 60-month period
Difference between the gain or loss on the sale of property reported for regular tax purposes and the gain or loss reported for AMT purposes
AMT Exemptions
The amount of the exemption depends upon the filing status of the taxpayer.
2019 EXEMPTION:
MFJ or QW - $111,700
S or HH - $71,700
MFS - $55,850
PHASEOUT START 2019
MFJ or QW - $1,020,600
S or HH - $71,700
MFS - $510,300
What are the AMT Tax Rates?
The individual tax rates for AMTI are:
26% for the first $194,800 in 2019 of AMT Income (after the exemption)
a8% for all AMTI in excess of $194,800 in 2019.
AMT Tax Credit
A taxpayer with AMT liability in the current year may recapture that amount in future years in the form of a credit.
This non-refundable credit can offset future tax liability only to the extent prior AMT tax paid was due to deferral items.
The credit cannot reduce tax below the tentative minimum tax for the year.
AMTI Calculation
Taxable income
+ or - Adjustments
+ Tax preferences
= Alt Minimum taxable Income
Alt Minimum taxable Income
- Exemption Amount
= AMT Base
AMT Base
x tax Rate (26% and 28%)
= Tentative Minimum Tax before Foreign Tax Credit
Tentative Minimum Tax before Foreign Tax Credit
- Foreign Tax Credit
= Tentative Minimum Tax
Tentative Minimum Tax
- Regular tax
= Alternative Minimum Tax
When do mandatory distributions begin for Qualified Retirement Plans?
April 1 of the year that follows the later of, the calendar year in which you retire from employment with the employer maintaining the plan or you reach age 70.5
When calculating the AMT income, what adjustments are added back in?
- State and Local Income Tax deductions
- Real Estate and Property tax deductions
- Certain Interest
- Most Misc deductions
Also add back in the Standard Deduction, when applicable.
NOT Charitable Contributions
Is income passed through an S Corp considered Self-Employment income?
No. This is one of the main advantages of S Corporations.
However, when determining income for Self-Employment taxes, payment of commissions or fringe benefits could be part of income from self-employment if the recipient is self-employed.
Also, guaranteed payments from partnership are earnings from self-employment.
Calculation of Alternative Minimum Tax (AMT) is based on a percentage of?
Alternative Minimum Tax Income (AMTI).
To calculate the Alternative Minimum Tax, a taxpayer first calculates Alternative Minimum Tax Income (AMTI). After subtracting the AMT exemption, apply a flat tax rate of 26% on AMTI up to a specified amount determined by filing status. A 28% rate applies to the excess. This is the tentative minimum tax. If the tentative minimum tax exceeds normal income tax liability the taxpayer reports the difference as AMT on the tax return.
Which amount of 2019 self-employment income is subject to Social Security tax, reported on Schedule SE?
For 2019, the first $132,900 of net earnings is subject to both Social Security and Medicare taxes. Net earnings above that amount are not subject to Social Security tax. All net earnings are subject to Medicare tax. Therefore, net earnings up to $132,900 is subject to Social Security tax.
What is included in an individual taxpayer’s Total Tax?
- Income Tax
- AMT
- Non-Refundable Tax Credits
- Other Taxes
Note: RE: Refundable Tax Credits, The IRS treats refundable credits the same as payments of tax.
If the child’s income from interest and dividends (including capital gain distributions) is less than _________ in 2019, the parent may elect to include that income on the parent’s return rather than file a return for the child.
$11,000
Juan, a single man, retired under a qualified employee plan in 2018. He will reach age 70 1/2 on August 20, 2019. By what date must Juan receive his first required minimum distribution?
April 1, 2020
This includes: IRA, SIMPLE IRA, SEP IRA, or retirement plan.
The reason for this rule is to make sure that most of your retirement benefits are paid to you during your lifetime, rather than to your beneficiaries after your death
Net Investment Income Tax does not apply to what type of net investment income?
Tax-Exempt Interest
EXPLANATION:
In general, investment income includes, but is not limited to interest, dividends, capital gains, rental and royalty income, non-qualified annuities, income from businesses involved in trading of financial instruments or commodities, and businesses that are passive activities to the taxpayer (within the meaning of Section 469). The taxpayer may reduce investment income by certain expenses properly allocable to the income.
The Net Investment Income Tax does not apply to any amount of gain that is excluded from gross income for regular income tax purposes.
Net Investment Income Tax Rate:
3.8%
It applies to certain net investment income of individuals, estates, and trusts that have income above the statutory threshold amounts.
Taxable mutual fund distribution income could be subject to the Net Investment Income Tax. True or False?
True.
EXPLANATION
In general, investment income includes, but is not limited to: interest, dividends, capital gains, rental and royalty income, non-qualified annuities, income from businesses involved in trading of financial instruments or commodities and businesses that are passive activities to the taxpayer (within the meaning of section 469).
For purposes of the Net Investment Income Tax (NIIT), net investment income does not include distributions from a qualified retirement plan (for example, 401(a), 403(a), 403(b), 457(b) plans, and IRAs). Distributions from a nonqualified retirement plan are included in net investment income.
The Net Investment Income Tax does not apply to any amount of gain that is excluded from gross income for regular income tax purposes.
The Net Investment Income Tax applies to certain net investment income includes:
- interest,
- dividends,
- capital gains,
- rental and royalty income, reduced by expenses properly allocable to the income
True or False?
True
NOTE:
Net investment income does not include distributions from a qualified retirement plan.
NIIT
Net Investment Income Tax
NIIT is imposed by Section 1411 of the Internal Revenue Code. The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates, and trusts that have income above the statutory threshold amounts. Individuals, estates, and trusts will use Form 8960 to compute their Net Investment Income Tax.
A taxpayer with Net Investment Income will owe the NIIT if modified adjusted gross income exceeds one of the following thresholds:
MFJ: $250,000 MFS: $125,000 Single: $200,000 HOH: $200,000 QW: $250,000
Distributions from a nonqualified retirement plan is included in the NIIT calculation. True or False?
True
EXPLANATION
For purposes of the Net Investment Income Tax, net investment income does not include distributions from a qualified retirement plan (for example, 401(a), 403(a), 403(b), and 457(b) plans) and IRAs. Distributions from a nonqualified retirement plan are included in net investment income.
Form 8814 is used to include a child’s investment income on their parents’ return, rather filing a separate return for the child. True or false?
True
EXPLANATION
To qualify for inclusion on the tax return of the parents all of the child’s income must be unearned. The child cannot have earned income. Unearned income includes taxable interest, ordinary dividends, capital gains (including capital gain distributions), rents, royalties, etc. It also includes taxable social security benefits, pension and annuity income, taxable scholarship and fellowship grants not reported on Form W-2, unemployment compensation, alimony, and income (other than earned income) received as the beneficiary of a trust.
What 7 conditions must be met for a parent to be able to include a child’s income on their return, rather than file a return for the child?
The parent can make the election only if the child meets all of the following conditions:
- The child was under age 19 (or under age 24 if a full-time student) at the end of the year
- The child had only unearned income, income only from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends)
- The child’s gross income is less than $11,000 in 2019
- The child is required to file a return unless the parent makes this election (child’s gross income is more than $1,100 in 2019)
- The child does not file a joint return for the year
- There were no estimated tax payments for the child for the tax year, and no overpayment of tax from the previous tax year can apply to the tax year under the child’s name and Social Security number
- There was no federal income tax withheld from the child’s income
When a child has more than $2,200 in income from interest, dividends, or other investments in 2019, part of that income may be taxed at the parent’s tax rates or at the estate and trust’s tax rates, instead of the child’s tax rates.
True or False?
True.
EXPLANATION
When a child has more than $2,200 of unearned income (income from interest, dividends, or other investments) in 2019, part of that income may be taxed at the parent’s tax rates or at the estate and trust’s tax rates, instead of the child’s tax rates.
