Chapter 14 Special Tax Computation Methods. Tax credits,, and Payment of Tax
Chapter 14 Special Tax Computation Methods, Tax Credits, and Payment of Tax
Learning Objectives Calculate the alternative minimum Tax Describe what constitutes self employment income and compute the self employment tax Describe the various business and personal tax credits Understand the mechanics of the federal withholding tax system and the requirements for making estimated payments
Learning Objectives • Calculate the Alternative Minimum Tax • Describe what constitutes selfemployment income and compute the selfemployment tax • Describe the various business and personal tax credits • Understand the mechanics of the federal withholding tax system and the requirements for making estimated payments
Alternative Minimum Tax COMPUTATIONALASPECTS TAXABLE INCOME PLUS+: TAX PREFERENCE ITEMS PLUS PERSONAL AND DEPENDENCY EXEMPTION PLUS+ OR MINUS: ADJUSTMENTS REQUIRED EQUALS =: ALTERNATIVE MINIMUM TAXABLE INCOME MINUS EXEMPTION AMOUNT ($45,000 MFJ&ss,$33, 750 single, &$22, 500 MFS) EQUALS = ALTERNATIVE TAX BASE TIMES X: TAX RATE (26%of first $175,000; 28%amounts in excess of $175,000) EQUALS = TENTATIVE MINIMUM TAX MINUS: REGULAR TAX EQUALS =: THE ALTERNATIVE MINIMUM TAX
Alternative Minimum Tax COMPUTATIONAL ASPECTS TAXABLE INCOME PLUS+: TAX PREFERENCE ITEMS PLUS+: PERSONAL AND DEPENDENCY EXEMPTION PLUS+ OR MINUS: ADJUSTMENTS REQUIRED EQUALS =: ALTERNATIVE MINIMUM TAXABLE INCOME MINUS: EXEMPTION AMOUNT ($45,000 MFJ & SS, $33,750 single, & $22,500 MFS) EQUALS =: ALTERNATIVE TAX BASE TIMES x: TAX RATE (26% of first $175,000; 28% amounts in excess of $175,000) EQUALS =: TENTATIVE MINIMUM TAX MINUS: REGULAR TAX EQUALS =: THE ALTERNATIVE MINIMUM TAX
Alternative Minimum Tax Tax preference items Include excess depreciation over sIL depreciation Tax-exempt interest on certain activity bonds Exclusion of gain on the sale of certain small business stock under sec. 1202
Alternative Minimum Tax • Tax preference items – Include excess depreciation over S\L depreciation – Tax-exempt interest on certain activity bonds – Exclusion of gain on the sale of certain small business stock under Sec. 1202
Alternative Minimum Tax AMT adjustments For most taxpayer AMTI adjustments represent itemized deductions that are not allowed in com puting AMTI Only certain itemized deductions allowed for AMt purposes Casualty and theft loss in excess of 10% of AGi Charitable contributions Medical expenses in excess of 10% ofAG Qualified housing interest
Alternative Minimum Tax • AMT adjustments – For most taxpayer AMTI adjustments represent itemized deductions that are not allowed in computing AMTI – Only certain itemized deductions allowed for AMT purposes • Casualty and theft loss in excess of 10% of AGI • Charitable contributions • Medical expenses in excess of 10% of AGI • Qualified housing interest
Alternative Minimum Tax AMT adjustments due to timing differences For real property placed in service after 1986 difference between MACRS and ADs
Alternative Minimum Tax • AMT adjustments due to timing differences – For real property placed in service after 1986, difference between MACRS and ADS
Alternative Minimum Tax AMT adjustments due to timing differences For personal property placed in service after 1986 difference between MACRS deduction and the amount determined by using 150% DB method
Alternative Minimum Tax • AMT adjustments due to timing differences – For personal property placed in service after 1986, difference between MACRS deduction and the amount determined by using 150% DB method
Self-employment Tax Distinction between independent contractor and an employee is important Self-employed individuals are subject to self-employment 回酒a? tax on the amount of net earnings from the self- 州 H APPLE CIDER RR SALE 2 employment TTU 回· Employees who have a small business in addition to regular employment may also be subject to the self- employment tax
Self-employment Tax • Distinction between independent contractor and an employee is important • Self-employed individuals are subject to self-employment tax on the amount of net earnings from the selfemployment • Employees who have a small business in addition to regular employment may also be subject to the selfemployment tax
Self-employment Tax Computing the tax Individuals having net earnings from self employment of $400 or more are subject to the self-employment tax The self-employment tax CHOP is 15.3%. This consist of an 12.4% for OASDI and 2.9% TOTE for Medicare, The limit for 2001 on OASDI is $80, 400 and there is no limit on the Medicare portion of the self-employment tax
Self-employment Tax • Computing the tax – Individuals having net earnings from selfemployment of $400 or more are subject to the self-employment tax – The self-employment tax is 15.3%. This consist of 12.4% for OASDI and 2.9% for Medicare. The limit for 2001 on OASDI is $80,400 and there is no limit on the Medicare portion of the self-employment tax
Self-employment Tax Computing amount subject to the self-employment tax To compute the amount that is subject to self employment tax. Multiply self-employment income by9235%(100%765% this equals the net earnings from self. employment
Self-employment Tax • Computing amount subject to the self-employment tax – To compute the amount that is subject to selfemployment tax. Multiply self-employment income by 92.35% (100%-7.65%) this equals the net earnings from selfemployment