REG - AMT & Other Taxes

Question 1

What are some of the adjustments to AMTI?

Answer 1

• Real property placed in service between 1987 and 1998, the difference between regular tax depreciation and SL depreciation over 40 years.
• Personal property in service after 1986, difference between regular tax depreciation using the 200% declining balance method and depreciation using the 150% declining balance method (switch to SL when it maximizes the deduction)
• Excess of stock’s FMV over amount paid upon exercise of incentive stock options.
• Medical expense deduction is computed using a 10% floor (instead of the 7.5% floor that might have been used for regular tax.
• No deduction is allowed for home mortgage interest if the loan proceeds were not used to buy, build, or improve the home.
• No deduction is allowed for personal, state, and local taxes, and for miscellaneous itemized deductions subject to the 2% floor for regular tax purposes.
• No deduction is allowed for personal exemptions and the standard deduction
• For long-term contracts, the excess of income under the percentage-of-completion method over the amount reported using the completed-contract method.
• The installment method cannot be used for sales of dealer property.

Question 2

What are tax credits applicable to the AMT?

Answer 2

Generally, a TP’s tax credits are allowed to reduce regular tax liability, but only to the extent that regular income tax liability exceeds tentative minimum tax liability.

• all nonrefundable personal credits are allowed to offset both regular tax liability and the AMT.
• a TP’s AMT is also reduced by the AMT foreign tax credit, the alcohol fuels credit, the renewable electricity production credit, and several other specified credits.

Question 3

Is there a minimum tax credit related to the AMT?

Answer 3

The amount of AMT paid (net of exclusion preferences) is allowed as a credit against regular tax liability in future years.

• amount of the AMT credit to be carried forward is the excess of the AMT paid over the AMT that would be paid if AMTI included only exclusion preferences (e.g., disallowed itemized deductions and the preferences for excess percentage depletion, and tax-exempt interest)
• the credit can be carried forward indefinitely, but not carried back.
• the AMT credit can only be used to reduce regular tax liability, NOT future AMT liability.

Question 4

What is the FICA tax composed of?

Answer 4

The social security tax (FICA) has two components:
1) Old Age, Survivor, and Disability Insurance (OASDI), and
2) Medicare Hospital Insurance (HI).
Rates are: OASDI = 6.2% / HI = 1.45% (paid by EE and employer).
-OASDI is capped at $127,200. (HI applies to all amounts)
-HI is increased by 0.9% (to 2.35% total) for any wages above $200K, but is paid by EE only, regardless of filing status.

Question 5

What are the terms of FUTA tax?

Answer 5

Federal unemployment tax is imposed on employers only at a rate of 6.2% of the first $7K of wages paid to each employee.
-credit of up to 5.4% is available for unemployment taxes paid to the state, which if applicable in full would leave employer with a net federal tax of 0.8%.

Question 6

Is there a tax on the self-employed?

Answer 6

Yes, the self-employment tax is imposed on individuals who work for themselves (e.g., sole proprietor, independent contractor, etc.). The combined self-employment tax rate is 15.3%, of which the Medicare portion is 2.9%

• full self-employment tax is capped at $127,200, and Medicare of 2.9% applies to all earnings.
• HI rate is increased 0.9% for earnings above $200K ($250 on joint return, $125 for married filing separately). On joint return the additional 0.9% tax is imposed on combined income of both spouses.

Question 7

What items comprise the income from self-employment?

Answer 7

All items of business income less business deductions.

• does not include personal interest, dividends, rents, capital gains and losses, and gains and losses on the disposition of business property.
• wages that are subject to FICA tax are deducted from $127,200 in determining the amount of income subject to self-employment tax.
• if net earnings from self-employment are

Question 8

What is Net Investment Income Tax (NIIT)?

Answer 8

Also know as the Medicare Contribution Tax. It is imposed on TPs (individuals, estates, and trusts) at a rate of 3.8% on the lesser of (a) net investment income, or (b) the excess of modified AGI over a threshold amount.

• Married, jointly = $250K
• Married, separately = =125K
• Single/HoH = $200K

Question 9

What are net investment income & modified AGI used for NIIT?

Answer 9

Investment Income: (1) traditional portfolio income (e.g., dividends, interest, royalties, etc.) + (2) trade or business income from passive investments and income from trading in financial instruments + (3) gains from the sale of stocks, bonds, and mutual funds, including numerous special rules.
-but reduced by expenses properly allocable to investment income.
Modified AGI: AGI increased by any foreign earned income exclusion reduced by any allocable deductions and credits.