Unit 4 AMT and the Kiddie Tax Flashcards
When does the AMT tax come into effect?
Payable when taxable income from regular income tax plus AMT adjustments and preference items exceeds certain exemption amounts.
For AMT purposes what are the 2 things that Exemptions amounts are subject to or adjusted for?
subject to phase out thresholds and are adjusted for inflation.
When is AMT payable?
IF regular income tax - credits < Individual AMT, AMT is due (difference is the amount that is payable)
How do you calculate AMT payable?
Regular income tax \+ Positive AMT Adjustments - Negative AMT Adjustments \+ AMT tax preference items = AMTI (Alt. min. taxable income)
Then
AMTI - applicable AMT exemption (based on filing status) = alternative min. tax base and AMT base x AMT rate (refer to tax tables) = tentative AMT - Regular income tax on taxable income = AMT payable
Adjustments for AMT can be positive or negative. What is a positive adjustment and what is a negative adjustment?
Positive Adjustment - Is an amount that is allowed for regular income taxes but exceeds the amount allowed for AMT. (So it is added back)
Negative Adjustment - Is an amount allowed for AMT that exceeds that which is allowed for regular income taxes. (So it is subtracted)
For AMT purposes is the following allowed, disallowed for regular tax and Individual AMT. Is it a positive or a negative adjustment to AMT?
Standard Deduction?
Allowed for regular tax
Disallowed for AMT
Positive Adjustment to AMT
For AMT purposes is the following allowed, disallowed for regular tax and Individual AMT. Is it a positive or a negative adjustment to AMT?
Itemized deduction?
Allowed for regular tax
Disallowed for AMT
Positive Adjustment to AMT
For AMT purposes is the following allowed, disallowed for regular tax and Individual AMT. Is it a positive or a negative adjustment to AMT?
Bargain element on the exercise of an incentive stock option (ISO)?
Not taxed on regular income
Bargain element (spread) is an add-back
Positive Adjustment to AMT
What are the AMT adjustments that are considered exclusion items?
Standard Deduction Itemized Deduction Exclusion from gain of QSBS (Qualified small bus. stock) Tax Exempt interest Percentage depletion
Any adjustment / preference item that is not an exclusion item in AMT is a what?
deferral item which includes the bargain element
Individual AMT credit is available only to the extent AMT was attributable to what items?
Deferral items
What are some before planning strategies for AMT?
- Identify deferral and exclusion items that could create AMT liability
- Multiple year projection is essential: most planning strategies involve timing income and allowable deductions from year to year.
What are the 3 general strategies for AMT planning?
- Move income into an AMT year: Works best if AMT results from add-back of exclusion adjustments or preferences. Accelerate income into AMT year if marginal tax bracket in years will exceed 28%
- Move deductions into non-AMT year: if itemized deductions increases exposure to AMT
- Time recognition of certain AMT adjustments and tax preferences items: Avoid purchasing private activity bonds (other than those issued in 2009 and 2010.
What is the Kiddie tax?
Applies to UNEARNED INCOME of a minor under the age of 19 and under 24 id a dependent full-time student providing less than 50% of their own support.
What rates are used for the Kiddie tax?
tax brackets for estates and trust. highest being 37%
Who all does the Kiddie tax apply to?
Anyone who transfers property to the child
What custodial accounts are subject to the kiddie tax?
UGMA and UTMA accounts
How is the Kiddie tax calculated?
Total unearned income
- $1,100 (Standard deduction for 2019 check 2020)
- $1,100 (2019) or amount of allowable itemized deductions directly connected with production of unearned income if it is greater.
= net unearned income taxed at estate and trusts tax rate.
What rate can a child use for qualified dividends or long-term capital gains, depending on income.
0%
What is the standard deduction for a child with BOTH unearned and earned income?
Standard deduction greater of:
$1,100 (2019) or
amount of earned income plus $350, but no more than the standard deduction of $12,200 for single tax payer (2019)
Pg 77 of text book unit 4
What are the 3 steps to calculating the Kiddie Tax?
1st: Determine unearned income in excess of $2200. This amount is the taxable income taxed at the applicable tax rate for estates and trusts
2nd: Determine the applicable standard deduction and calculate taxable income.
3rd: Determine amount of taxable income from step 2 taxed at the applicable tax rates for estates and trust (step 1) and amount at Childs rate.
Kiddie tax 3 step formula?
Step 1.
Unearned income (UI)
- Kiddie tax threshold ($2200 2019)
= UI income taxed at trusts and estates
Step 2
Earned income \+ unearned income = Gross income - Standard deduction (note 1 see below) = taxable income
Step 3
Taxable income
- UI income taxed at trusts and estates from step 1
note 1: greater of standard deduction $1,100 2019 or earned income plus $350 capped at regular standard deduction of $12200 for single tax payer 2019
