Facts about the Alternative Minimum Tax (AMT)

Posted by Bruce Mc on May 27, 2011 in AMT | 0 comments

The Alternative Minimum Tax attempts to ensure that anyone who benefits from certain tax advantages pays at least a minimum amount of tax. The AMT provides an alternative set of rules for calculating your income tax. In general, these rules should determine the minimum amount of tax that someone with your income should be required to pay. If your regular tax falls below this minimum, you have to make up the difference by paying alternative minimum tax.

Here are six facts the Internal Revenue Service wants you to know about the AMT and changes for tax year 2010.

1. Tax laws provide tax benefits for certain kinds of income and allow special deductions and credits for certain expenses. These benefits can drastically reduce some taxpayers’ tax obligations. Congress created the AMT in 1969, targeting higher income taxpayers who could claim so many deductions they owed little or no income tax.
2. Because the AMT is not indexed for inflation, a growing number of middle-income taxpayers are discovering they are subject to the AMT.
3. You may have to pay the AMT if your taxable income for regular tax purposes plus any adjustments and preference items that apply to you are more than the AMT exemption amount.
4. The AMT exemption amounts are set by law for each filing status
5. For tax year 2010, Congress raised the AMT exemption amounts to the following levels: $72,450 for a married couple filing a joint return and qualifying widows and widowers; $47,450 for singles and heads of household; $36,225 for a married person filing separately.
6. The minimum AMT exemption amount for a child whose unearned income is taxed at the parents’ tax rate has increased to $6,700 for 2010.

If you want further information on the AMT and your tax situation, please contact my office.

A Week in Perspective

Posted by Bruce Mc on Dec 19, 2010 in Information, Opinions, Week in review | 0 comments

Want to let everyone know that with the upcoming holidays and my need to catch up my readiness for this upcoming season, The will be no Week In Perspective on December 26^th, or January 2^nd.

I also want to let you all know that I have a very special post for you scheduled for January 4^th.

Happy birthday to us! – Twenty years ago, five more-or-less young accountants went over the wall of a national CPA firm to start their own firm. They wisely discarded their first working firm name (“Dunderhead CPAs”) and settled on the name “Roth & Company.”

Not sure how I missed this:

Are You Ready For The Big Payroll Tax Deposit Change? – The IRS is changing the rules in a BIG way, when it comes to payroll and corporation tax deposits. Are you going to be ready for this new change? If not, you don’t have long to get ready! The new change goes into effect on January 1, 2011.

IRA Investment Planning for Taxation

3 Ways to Improve Your Credit in the New Year – Improving your credit quickly can be tough since the whole point of a credit history is to establish good financial trends – a pattern of paying off your debts.  However raising your score over a longer period of time isn’t too tough if you consistently follow good money habits.

Why Don’t We Tip Everyone? – Earlier this week I asked my readers why they tip at the holidays. I was afraid a lot of you would read that, scoff, and say “Of course I tip my coffee barista! Every day!”. Of the few people that commented it seemed that everyone thought there was an appropriate time to tip (I agree) and sometimes it just doesn’t make sense to tip. But as I considered holiday tipping another thought crossed my mind. Why do only certain professions warrant the expectation of tips?

Everyone is Deserving, Right?

Friday’s Tax Quote – December 17, 2010 – “People don’t complain about taxes because they are selfish or stingy. They complain because they simply don’t believe they’re getting their money’s worth.”

- Zell Miller

Don’t Overlook This Easy Way to Put More Money in Your Pocket – If you have an employer, you might be offered a health care or dependent care flexible spending account benefit. Flexible spending accounts are one of those benefits that can make your eyes glaze over, because at first glance they don’t seem like a benefit. But they’re actually great, because when you take advantage of them you get to:

Are You on the Hook for Repaying Your Homebuyer Tax Credit? – In the wake of the financial crisis and the housing market crash, there were a number of efforts made to prop up the failing market. Among these efforts were tax credits for homebuyers, encouraging them to buy homes. However, not all the tax credits were created equal; in some cases, homeowners may be on the hook for repaying the tax credit.

FINALLY!

Merry Taxmas! House OKs tax bill – In addition to keeping the current six tax rates that range from 10 percent to 35 percent, the bill contains a raft other tax breaks for both individuals and businesses. Many of the provisions relate to 2011, but there are some of the individual tax provisions that expired at the end of 2009 and were extended retroactively for the 2010 tax year:

• Alternative minimum tax (AMT) patch
• State and local sales tax deduction (itemizing required)
• Tuition and fees deduction
• Teachers et al write-off for $250 of out-of-pocket expenses
• Private mortgage insurance (PMI) deduction
• Direct donation of IRA money by older account holders

A New 2011 Economic Stimulus Package With Obama-Bush Tax Cuts and Unemployment Benefit Extensions – [Update - No New Taxes with Tax Extensions Approved] President Obama has signed into law a bill that covers an extension of all the bush-era tax cuts and additional tax benefits. With this legislation he has essentially created a new 2011 Economic Stimulus package, estimated at around $858 billion. Here’s how various key components of the “2011 economic stimulus package” legislation will affect you:

Estate tax extension through 2012: Nudging mama off the train in two years?

With Obama’s signing of the compromise tax deal yesterday, the really wealthy were among those who got an early tax present.

Some of the House Democrats railed against this latest version of the estate tax, but in the end, it passed.

For 2011 and 2012, estates worth $5 million or less won’t be taxed at all. For estate values greater than that, a 35 percent tax rate will apply.

Bush-rate extension passes; what it means – After a day of posturing, the extension of the Bush-era tax cuts ended up passing easily last night, 277-148.

So what does it do? Go to the above page for Joes great list of. . .

Also with More coverage of the final bill:

Robert D. Flach, TaxGrrrl, Tax Foundation, Kay Bell, Peter Pappas, The Blog that Inexplicably Hates Our LInks

Tax Bill Passes: What This Means for You – Here’s what’s in and out and what this means for you.

Boston Tea Party Anniversary – The Boston Tea Party was 237 years ago.

Steps To Stimulate A Recovery And Employment The Law Of Opposites

December 19th, 2010 Filed under: MBA Finance Jobs — Finance Author

As I wrote in 2008 on the financial crash, I was in the small minority that would have let the market crash. Now, you may be wondering what I meant then and mean now:

How do we distribute tax benefits for charitable donations? – I’m struck by the remarkable generosity of many of the low-income taxpayers at our Union College Volunteer Income Tax Assistance (VITA) site, who rarely get any tax benefits for their donations.

The AMT Effect for Individuals – For years, tax practitioners have been clamoring for a permanent fix to the AMT system. Ask a tax preparer about the late extension passed in 2007. If Congress does not pass the extension this year, it is estimated that 28 million taxpayers will pay AMT, with 82% of those taxpayers earning below $200,000. You will notice, that in 2009, 4.5 million were subject to the AMT.

2010 and 2011 AMT Tax Brackets – AMT is Alternative Minimum Tax. The Bush tax cut extension law officially known as the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (H.R. 4853) includes an AMT patch for 2010 and 2011. Congress used to patch AMT one year at a time. This time they did two years in one shot. That’s a 100% improvement!

How much are those New Year’s Eve babies worth?

A time to be born … a time to die – Playing the video while you read this post. And yes read the post. This is a great Article Mary.

“There’s no such thing as a free bike.” – Those “gift” bikes could turn out to be very expensive, because the IRS does not treat it as a “gift” but as a “taxable fringe benefit.”

It raises interesting tax questions.

Rentals and 1099s – Beginning in just a few days, landlords will have a new complication to renting their properties. As if dealing with renters who don’t want to pay their rent or trash the house when they leave isn’t bad enough, landlords will have to begin issuing 1099MISC to any service providers they pay $600 or more over the course of the year.

The new 1099 Requirement you MUST comply with in 2011 – Real estate investors take note: January 1, 2011, is the starting date for new 1099 Reporting rules. Effective January 1st, you must track payments you make to all businesses and individuals that you buy services from. Once you have paid $600 or more to any one business or person in connection with any kind of rental property expense, you’ll need to report those payments to the IRS, and issue each person or business a form 1099-MISC…

Form 1099 repeal fails yet again

While waiting for the Senate to get around to its final vote on the deal to extend the current income tax rates, the chair of the Finance Committee took another shot at repealing the new Form 1099 reporting requirement.

This tax task was devised as a way to help pay for health care reform. Specifically, businesses will have to provide 1099 information returns to each payee that the business pays $600 or more during the year.

How the Price to Earnings Ratio is Calculated – The price to earnings ratio (P/E ratio) represents a company’s current share price compared to its earnings per share. Commonly referred to as the earnings multiple, the P/E is commonly used by investors to compare and analyze stocks, as well as determine if a company is under or overvalued. There are many different versions of the price to earnings ratio which are often used to understand past, present, and future valuations.

TAX BLOGOSPHERE BUDDIES – PROF JAMES MAULE – Friday series of mini-interviews with fellow tax bloggers is Professor James Maule of MAULED AGAIN. A fellow “Wandering Traveler in the Internet Wilderness”, Jim has been a professor at Villanova University School of Law in Pennsylvania since 1983, and has been blogging since 2004. I enjoy reading Jim’s, appropriate for his profession, scholarly posts on tax policy. We have both made the extreme error of disagreeing with a certain multi-initialed blogger.

Social Security by the Numbers

Charge cards vs. credit cards: 3 reasons to charge it – The other day, someone asked me, if given the option, which I preferred: charge cards or credit cards. My answer: “There’s a difference?”

There is. And who knew?

(If you knew, kudos, because I always thought “charge card” was what our ancient ancestors – Mom and Dad – called the plastic we carry around in our wallet.)

Pre-paid credit cards: Why you should give them a second look – Today, it’s often difficult for anyone to get a credit card – whether it’s a zero percent balance transfer card or a best cash back credit card. And if you’re just starting out -or starting over – getting an approval based on your credit score can be even more of a hassle. This is what makes pre-paid cards so attractive if you want to use them for online shopping, travel or even just everyday expenses.

Reminder;

You can go to my company web site Tax Center page where you’ll find this year I have a Free Tax Organizer. You’ll need a .pdf reader to open this 14 page organizer. You can also find my Online Tax Organizer, used mostly by clients and/or those who will be clients.

Enter your email to subscribe to the L & R Tax Preparation monthly newsletter.

How do I know if I have to worry about the AMT?

Posted by Bruce Mc on Nov 19, 2009 in AMT, Information, Opinions | 0 comments

          One of the big problems with the AMT, there’s no good answer to this common question. You can owe AMT liability due to any number of reason/s. Could be just one thing, could be a lot of little things. Some things that can contribute to an AMT liability are mundane items that appear on many tax returns. (See this list Top 10 Things that Cause AMT Liability.)

          If you use computer software to prepare your tax return, the program should (I would hope) be able to do the AMT calculations for you. If you’re preparing your return by hand, the only way to know for sure is to fill out IRS Form 6251 – a very laborious process, on that I charge almost $80.00 for, and that price is adjusted (usually up) almost every time.

         The best way to understand the alternative minimum tax liability is to see how it’s calculated. So, here’s what you do.

         First, you figure the amount of tax you would owe under the different rules. What’s different about these rules? Roughly speaking, there are three things:

1. Various tax benefits that are available under the regular tax are reduced or eliminated.
2. You get a special deduction called the AMT exemption, which is designed to prevent the AMT from applying to taxpayers with modest income. This deduction phases out when your income reaches higher levels, a fact that causes significant problems with the alternative minimum tax.
3. You calculate the tax using AMT rates, which start at 26% and move to 28% at higher income levels. By comparison, the regular tax rates start at 10% and then move through a series of steps to a high of 35%.

          The result of this calculation is the amount of income tax you would owe under this “alternative” system of tax.

          Okay, got that number? Now then, compare this “tax” with your regular tax. If the regular tax is higher, you don’t owe any AMT. However, if the regular tax is lower, the difference between the two taxes is the amount of AMT you have to pay.

         You should definitely run the numbers if your gross income is above $75,000 and you have write-offs for personal exemptions, taxes and home-equity loan interest. if your income is over $150,000, run the numbers just because.

        Running the numbers means filling out Form 6251. In effect, you are simply adding back some tax deductions and income exclusions to your regular taxable income to arrive at your new alternative minimum taxable income (AMTI).

“Here is where the middle class gets screwed by the goat. If you are planning on doing all this on your own please call a tax pro for some guidance and a better understanding.”

         The AMT form has quite a few other pluses and minuses, but you can probably ignore them unless you own a business, rental properties or interests in partnerships or S corporations. If you do, you may need a tax pro to prepare at least the Form 6251 part of your return for you.

         Finally, you get to deduct the AMT exemption however, this exemption is reduced by 25 cents for each dollar of AMT taxable income above $150,000 for couples ($112,500 for singles and $75,000 for married filing separate status), and it’s not adjusted for inflation, which is one of the reasons why more people owe the AMT every year.

         After the exemption (if any) has been deducted, the result is subject to AMT rates. Again, the AMT brackets are not adjusted for inflation, which causes much greater exposure to the tax as the years go by. If the AMT exceeds your regular tax, you have to pay the greater amount. Basically, the AMT is just more tax, above and beyond your regular tax. Technically, the AMT is just the liability over and above the regular tax, and this figure is entered on page 2 of Form 1040.

Other notes:

         To calculate and report your AMT liability you need to fill out Form 6251, Alternative Minimum Tax – Individuals. If you use this form by all means please read the instructions.

         You’re required to take your AMT liability into account in determining how much estimated tax you pay. For information about estimated tax payments, see this Guide to Estimated Tax.