Mod 35: Individual Taxation Pt. 4 Flashcards
AMT has its own…
Foreign tax credit
You owe AMT if it is greater than…
Regular tax liability - foreign tax credit
Refundable tax credit
Get refund even if you didn’t owe any tax liability
Earned income credit is…
A refundable credit
AMT tax credit does not…
Does not reduce AMT taxes
If not an adjustment or preference item is…
Deductible for AMT
Charitable contributions are…
Deducted for both AMT and regular taxes
LT capital gains is…
Not a preference or adjustment for AMT
AMT computation 6 steps
1 regular taxable income \+/- adjustments + tax preferences 2 = Alternative minimum taxable income - exemption amount 3 = alternative minimum tax base X 26% or 28% 4 = Tentative before foreign tax credit - AMT foreign tax credit 5 = Tentative minimum tax - Regular tax liability 6 = AMT if positive
In the calculation of AMT, the alternative minimum tax base is multiplied by 26% or 28% unless…
Reduced rates for Qualified dividends and capital gains
In the calculation of AMT, regular tax liability (which is subtracted in 5th step from tentative minimum tax). The regular tax liability is…
Reduced by regular foreign tax credit
AMT adjustments:
Real property 2
1 Placed in service after 1986 and before 1999
2 difference between regular tax depreciation and straight line depreciation over 40 years
The current MACRS rates on depreciation after 1999
27.5 years or 39 years
AMT adjustments:
Personal property placed in service after 1986…2
1 Difference between regular tax depreciation = 200% declining
balance method
2 And depreciation using 150% declining balance method
AMT adjustments:
Excess of stock’s FMV over…
Amount paid upon exercise of incentive stock options
Excess of stock’s FMV over amount paid upon exercise of incentive stock options, is…
Income for AMT, but not for regular taxes
AMT adjustments:
Medical expense deduction
1 Computed using 10% floor
2 must recompute adjustment if used 7.5% for regular taxes
AMT adjustments:
Home equity loan
add back as adjustment if used for reason other than home improvements
AMT adjustments:
No deduction is allowed for (must add to AMT as an adjustment)…4
1 personal
2 state
3 local or
4 property taxes
AMT adjustments:
Miscellaneous deductions…
Subject to 2% floor are added back as adjustment
AMT adjustments:
Long term contracts 2
1 Must use percentage completion method
2 add back excess income of percentage completion method over
The completed contract method
AMT Preference items:
Tax exempt interest on private activity bonds…2
1 Added back as preference
2 unless issued in 2009 or 2010
Under AMT:
Preferences are…
Adjustments are…
Preferences always +’s
Adjustments are +’s and -‘s
AMT Preference items:
Accelerated depreciation…
On real property and leased property placed into service before
1987
AMT Preference items:
Excess of accelerated depreciation…
Over straight line
What was the name for accelerated depreciation of property placed in use prior to 1987?
ACRS
AMT:
Tax credits are generally…
1 Allowed to reduce regular tax liability
2 only to extent regular tax liability exceeds tentative tax liability
AMT:
All nonrefundable personal credits are…
Offset both regular tax liability and alternative minimum tax
AMT:
Minimum tax credit
Amount of AMT paid net of exclusion preferences
AMT:
Minimum tax credit is allowed as…
Credit against regular tax liability in future years
AMT tax credit 2 requirements
1 credit can be carried forward indefinitely, but can’t be carried back
2 can only be used to reduce regular tax liability not AMT liability
With the child tax credit, a portion of it…2
1 Is refundable
2 the other portion is nonrefundable
Self employment tax is imposed on individuals who work for themselves. These include individuals that are…3
1 sole proprietors
2 independent contractors
3 general partners
Interest income goes on…
Schedule B
Charitable contributions go on…
Schedule A
Rental income goes on…
Schedule E
Self employment tax deductibility
Partially deductible from gross income in arriving at AGI
Self employment tax is…
Social security for self-employed individuals
There is no tax if self-employment earnings are…
Less than $400
Individuals normally deduct what percentage of self employment tax?
Deduct 50% total self-employment tax for AGI
Child and Dependent Care Credit:
The credit may vary from…
20%-35% of amount paid for qualifying household
Child and Dependent Care Credit eligibility requirement:
applies to dependent care expenses incurred to…
Enable taxpayer to be gainfully employed or look for work
Child and Dependent Care Credit:
Eligibility requirement, married tax payer
Married taxpayer must file joint return
Child and Dependent Care Credit:
Eligibility requirement, if divorced or separated…
Credit available to parent having custody for longer time during the
year
Child and Dependent Care Credit:
Eligibility require,net, a qualifying individual must have…
The same principal place of abode as taxpayer for more than 1/2
Of tax year
Child and Dependent Care Credit:
Qualifying individual 2
1 taxpayer’s qualifying child under age 13
2 dependent or spouse who is physically or mentally incapable of
self-care
Child and Dependent Care Credit:
Qualifying expenses, are expenses incurred for…2
1 care of qualifying individual and
2 household services that partly care for qualifying individual
To enable taxpayer to look for work/work
Child and Dependent Care Credit:
Maximum amount of expenses that qualify for credit is least of…2
1 actual expenses incurred or
2 $3,000 for one, $6,000 for two or more qualifying individuals
Earned income credit is a…
Refundable tax credit for eligible low income workers
What would qualify you for an earned income credit?
Qualifying child would qualify you
Foreign tax credit:
Foreign income taxes on US taxpayer’s can either be…2
1 deducted or
2 used as credit by taxpayer each year
Child tax credit:
The amount of the credit is…
$1,000 per qualifying child
Child tax credit (CTC):
A qualifying child is a U.S. citizen or resident who is the taxpayer’s child, eligible foster child, stepchild, step-sibling or descendent who is…
Is less than 17yrs old at end of calendar year
A child tax credit is subject to…
Phase out
American Opportunity Credit
For first 4 years of postsecondary school program
American Opportunity credit can be used towards…4
1 qualified tuition, fees, books
2 can’t be used towards room and board
40% of the American Opportunity credit is…
Refundable
The remaining balance is nonrefundable
For tax year, the tax payer can choose between…2
1 The American Opportunity Credit (AOC) credit
or lifetime learning credit
2 can’t use both
Lifetime Learning credit is a…
Nonrefundable 20% tax credit available up to $10,00 qualified tuition
Lifetime learning credit can be claimed…
Unlimited number of years
Both Lifetime Learning credit and AOC credit are subject to…
Phase out
For both lifetime leaning and AOC credit, if a student is claimed as a dependent of another taxpayer…
Only the taxpayer may claim education credit for student’s qualified tuition and related expenses
An individual whose regular and alternative minimum tax liability is not sufficiently covered by withholding on wages must…2
1 Pay estimated tax in quarterly installments
2 or be subject to penalty
For 2013, individuals (other than high income individuals) will incur no penalty if the: amount of tax withheld + estimated payments
Are at least equal to the lesser of…2
1 90% of current year’s tax or
2 100% of prior year’s tax
For 2013, individuals (other than high income individuals) will incur no penalty if the: amount of tax withheld + estimated payments
When 100% of prior year’s tax is used, if you had no tax…
You don’t need to make estimated payments
For 2013, high income taxpayers (AGI over $150,000) will incur no penalty if the: amount of tax withheld + estimated payments
Are at least equal to the lesser of…2
1 90% of current year’s tax or
2 110% of prior year’s tax
Estimated tax payments:
Generally no penalty if…3
1 total tax due is under $1,000
2 taxpayer had no liability for prior year
3 IRS waives penalty because failure to pay is result of casualty
Or disaster
An automatic six month extension of time for filing the return can be obtained by…2
1 filing form 4868 and
2 paying estimated tax due
Taxpayer may begin tax litigation in any…3 courts
1 U.S. Tax Court
2 U.S. district courts or
3 U.S. court of federal claims
Tax court 2
1 court of national jurisdiction
2 hears only tax cases
Although a jury trial is not available, a major advantage of Tax Court is that…
Tax does not have to be paid before taxpayer goes to court
Tax Court issues regular and memo decisions which both can be used as…
Precedent
The IRS has adopted an acquiescence policy for regular Tax Court decision that?..
It loses
Acquiescence indicates that the IRS will…
Follow decision in future situation involving similar facts/issues
Non Acquiescence indicates that IRS will…
Not follow previous court decision and
Is expected to litigate
Decisions of Tax Court are appealed to…
U.S. Court of Appeals
Golsen Rule
Tax court will follow law of circuit to which case is appealable
A taxpayer may take a case to the Small Tax Case Division if the disputed amount does not exceed…
Small Tax Case Division decisions are…
$50,000
Binding
Each state has at least 1 U.S. district court which is independent of other district courts. District courts adjudicate…
All types of cases, not just tax cases
District court is the only court in which…
A jury trial is available
Unlike a proceeding in the Tax Court, taxpayer’s must first pay tax and then…
File suit in district court for refund
Decisions of district court are appealed to…
U.S. Court of Appeals
The losing party in U.S. Court of appeals may…
Appeal to US Supreme Court
U.S. Supreme Court normally hears tax cases only if they involve…
Conflict regarding treatment of an item between circuits of the
Appeals courts
Decisions of Supreme Court are the law of the land and take…
Precedence over all other court decisions
Normal period for assessment of tax deficiency is the later of…
1 three years after due date of return or
2 three years after return is filed
Assessment period is extended to 6 years if…
Gross income omission exceed 25% of gross income stated on
The return
There is no time limit for assessment if…3
1 no return is filed
2 return is fraudulent
3 there is willful attempt to evade taxes
Income tax refund claims are made on form…
Form 1040X
Refund claim must be filed within the later of…2
1 within 3 years from date return was filed or
2 two years from payment of tax
If return is filed before due date, the return is treated as…
Filed on due date
The 3 year period for claims of refunds is extended to 7 year period under the Statute of Limitations for claims resulting from…
1 business bad debts
2 worthless securities
If IRS fails to act on refund claim within 6 months, the taxpayer may…
Treat refund claim as disallowed
Life time learning credit is not available on a per student basis, it’s available on a…
Per taxpayer basis
If understate gross income by 25%, the statute of limitations…
Extends from 3 years to 6 years
Form 1045 is for
Net operating loss carryback
To claim refund for erroneously paid income taxes use form…
Form 1040X
Form 843 is used for…
Getting refund from withholding of taxes
Taxpayer penalties may be imposed for…3
1 late filing
2 failure to file
3 late payment of tax
Tax payer penalties:
Late filing or failure to file penalty
5% of net tax due per month (up to 25%)
Tax payer penalties:
Late payment of tax penalty is…
0.5% of net tax due per month (up to 25%)
Tax payer penalties:
For returns not filed within 60 days of due date (including extensions), the IRS may assess a minimum late filing penalty which is the lesser of…
$100 or amount of net tax due
Tax payer penalties, accuracy related penalty of 20% of underpayment applies if under payment of tax is attributable to:
Negligence or…
Disregard of rules and regulations
Tax payer penalties, accuracy related penalty of 20% of underpayment applies if under payment of tax is attributable to:
Any substantial understatement of…
Income tax
Tax payer penalties, accuracy related penalty of 20% of underpayment applies if under payment of tax is attributable to:
Any substantial valuation…
Valuation overstatement
Tax payer penalties, accuracy related penalty of 20% of underpayment applies if under payment of tax is attributable to:
Any substantial overstatement of…
Pension liabilities
Tax payer penalties, accuracy related penalty of 20% of underpayment applies if under payment of tax is attributable to:
Any substantial gift or…
Estate tax valuation understatement
Tax payer penalties:
Accuracy related penalty does not apply if…
Underpayment is due to reasonable cause
Tax payer penalties:
Substantial understatement of income tax penalty applies if understatement exceeds the greater of…2
1 10% of tax due or
2 $5,000 ($10,000 for most corporations)
Substantial understatement income tax penalty can be avoided if…2
1 adequate disclosure of position has reasonable basis or
2 substantial authority of position taken
Substantial valuation misstatement penalty may be imposed if the value (or adjusted basis) of property stated on return is…
150% or more of amount determined to be correct
Substantial overstatement of pension liabilities penalty applies if amount of stated pension liabilities is…
200% or more of amount determined to be correct
Gift or estate tax valuation misstatement penalty applies if the value on gift or estate tax property is…
50% or less of amount determined to be correct
Separate accuracy related penalty on tax shelter transactions 2
1 30% of tax understatement if failure to disclose
2 20% of tax understatement if disclose
Separate accuracy related penalty on tax shelter transactions, the penalty may be waived for…
Reasonable cause if tax payer made accurate disclosure
Civil fraud penalty
75% of underpayment attributable to fraud
Does the accuracy related penalty apply to portion of underpayment subject to fraud penalty?
No
