Unit 4 AMT and the Kiddie Tax Flashcards

1
Q

When does the AMT tax come into effect?

A

Payable when taxable income from regular income tax plus AMT adjustments and preference items exceeds certain exemption amounts.

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2
Q

For AMT purposes what are the 2 things that Exemptions amounts are subject to or adjusted for?

A

subject to phase out thresholds and are adjusted for inflation.

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3
Q

When is AMT payable?

A

IF regular income tax - credits < Individual AMT, AMT is due (difference is the amount that is payable)

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4
Q

How do you calculate AMT payable?

A
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
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5
Q

Adjustments for AMT can be positive or negative. What is a positive adjustment and what is a negative adjustment?

A

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)

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6
Q

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?

A

Allowed for regular tax

Disallowed for AMT

Positive Adjustment to AMT

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7
Q

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?

A

Allowed for regular tax

Disallowed for AMT

Positive Adjustment to AMT

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8
Q

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)?

A

Not taxed on regular income

Bargain element (spread) is an add-back

Positive Adjustment to AMT

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9
Q

What are the AMT adjustments that are considered exclusion items?

A
Standard Deduction
Itemized Deduction
Exclusion from gain of QSBS (Qualified small bus. stock)
Tax Exempt interest
Percentage depletion
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10
Q

Any adjustment / preference item that is not an exclusion item in AMT is a what?

A

deferral item which includes the bargain element

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11
Q

Individual AMT credit is available only to the extent AMT was attributable to what items?

A

Deferral items

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12
Q

What are some before planning strategies for AMT?

A
  1. Identify deferral and exclusion items that could create AMT liability
  2. Multiple year projection is essential: most planning strategies involve timing income and allowable deductions from year to year.
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13
Q

What are the 3 general strategies for AMT planning?

A
  1. 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%
  2. Move deductions into non-AMT year: if itemized deductions increases exposure to AMT
  3. Time recognition of certain AMT adjustments and tax preferences items: Avoid purchasing private activity bonds (other than those issued in 2009 and 2010.
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14
Q

What is the Kiddie tax?

A

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.

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15
Q

What rates are used for the Kiddie tax?

A

tax brackets for estates and trust. highest being 37%

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16
Q

Who all does the Kiddie tax apply to?

A

Anyone who transfers property to the child

17
Q

What custodial accounts are subject to the kiddie tax?

A

UGMA and UTMA accounts

18
Q

How is the Kiddie tax calculated?

A

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.

19
Q

What rate can a child use for qualified dividends or long-term capital gains, depending on income.

A

0%

20
Q

What is the standard deduction for a child with BOTH unearned and earned income?

A

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

21
Q

What are the 3 steps to calculating the Kiddie Tax?

A

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.

22
Q

Kiddie tax 3 step formula?

A

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