M4-AMT and Other Taxes

Question 1

The amount of income for a child under 18 that is taxable at the parents’ maximum tax rate is deemed the “kiddie tax.” How do you calculate it?

Answer 1

For our example, Child (age 5) has $3,000 of interest income and no earned income this year. Assume current applicable standard deduction is $950, how much of that income will be taxed at his parent’s maximum rate?

To calculate the amount that is taxed at the parents’ highest rate, take the child’s taxable interest income ($3,000) and reduce it by the child’s standard deduction ($950). The next $950 is then taxed at the child’s rate, and the balance of $1,100 is taxed at the parent’s highest rate.

Question 2

Formula to calculate AMT Tax.

Answer 2

Regular Taxable Income
\+/- Adjustments
\+Preferences
------------------------------------------
Alternative Minimum Taxable Income

Alternative Minimum Tax Base
x AMT rate
————————————————
Tentative AMT tax

Tentative minimum tax

Alternative minimum tax (pay in addition to regular tax)
=============================

Pay greater of
------------------------------
-Regular Tax
      or
-Tentative Minimum Tax

Question 3

Exemption amount formula for AMT:

Answer 3

Joint exemption (2017)                     $84,500
             AMTI (Alternative Minimum Taxable Income)

       Excess
    x  25% --------------------------

                                          --------------------------
                                            AMT Exemption
                                         =================

Single exemption (2017)                     $54,300
             AMTI 

       Excess
    x  25% --------------------------

                                          --------------------------
                                            AMT Exemption
                                         =================

Question 4

Adjustments that may increase or decrease AMT, (it is PANIC TIME)

PANIC are “timing differences” that may increase or decrease AMTI

TIME are items that may be included in deductions for regular tax purposes, but not for AMT purposes, and will only increase AMTI.

Answer 4

P Passive activity losses
A Accelerated depreciation (post-1986 purchase)
N Net operating loss of the individual taxpayer
I Installment income of a dealer
C Contracts-percentage of completion vs. completed

(these are all itemized deductions)
T Tax “deductions”
I Interest deductions on some home equity loans
M Miscellaneous deductions not allowed
E Exemptions (personal) and standard deduction

Home mortgage is ok. (not added back for AMT)

Question 5

Preference Items (always “add-backs”)

These items will result in more income or fewer deductions being recognized for AMT versus regular tax.

(these are all P for Preference items.

Answer 5

P Private activity bond interest income
P “Percentage depletion” deduction (excess over adjusted basis of property.
P Pre-1987 accelerated depreciation

Question 6

Credits that are allowed to reduce the AMT.
(FACCE it!)

Taxpayers can reduce their AMT liability by the full amount of their nonrefundable personal tax credits.

Answer 6

Foreign
Adoption
Child
Contribution IRA
Earned income

Question 7

Kiddie tax = interest and dividend income, what is the rates that it is taxed at?

Answer 7

2017 Child’s Unearned income tax rate
——————————————– ————-
$0-$1,050 0%
$1,051-$2,100 Child’s
$2,101 and over Parent’s

Question 8

The credit for prior year AMT liability may be carried forward for how long?

Answer 8

indefinitely.

AMT paid can be claimed as a credit against other years if the tax was paid on items that increased AMT that year but will reverse in later years.