Review of the Alternative Minimum Tax

by Alan Huerth 15. May 2012 13:15
  Most people are familiar with the Federal Income Tax (regular) system, but most are not that familiar with the Alternative Minimum Tax (AMT) system.  AMT does not apply to partnerships or S-corporations, but does apply to C-corporations, Estates, Individuals and Trusts.  AMT is a tax system separate from the regular tax system.  Under AMT, separate rates (26% or 28%) are applied to AMT income (regular income after certain “add backs” of various regular tax benefits) to determine the AMT tax liability.  The Taxpayer pays the larger of regular tax or AMT tax liability. The intent of AMT is to force taxpayers with high income and lots of certain types of deductions to pay tax to the Federal government.  An exemption amount is provided to prevent taxpayers with lower income from being included in the AMT system.   This exemption is phased-out (eliminated) for higher income earners.  Unfortunately, this exemption amount and phase-out are not indexed for inflation.  As a result, more middle class taxpayers become included in the AMT system each year.  This forces Congress to pass AMT legislation each year to “patch” this problem.  Congress has not always addressed this issue effectively. For individuals, the major “add backs” are: The personal exemption.  Taxpayers with many exemptions may end up paying AMT tax for this reason alone. The Standard Deduction. Real Estate taxes and State taxes deducted as itemized deductions. Miscellaneous Itemized deductions. Medical Expense deductions. Incentive Stock Options (ISOs).  The unrecognized gain on the exercise of the options is recognized for AMT. C-corporations whose average annual gross receipts for the prior three year period don’t exceed $7.5 million are exempt from AMT. Depreciation on tangible property is calculated differently for AMT than regular tax.  This adjustment affects everyone under AMT. There are other adjustments and preferences that can also apply.  Urish Popeck tax professionals can assist with the complexities of AMT. Please contact us if you need assistance.
Categories: Tax

Important Tax Figure Changes For 2011 and 2012

by Steven Sodini 18. January 2012 10:45
Each year, there are many important changes to various tax amounts, limitations, etc. (see Important Tax Figures for 2012).  This article will highlight some of the major changes from 2010 through 2012. Most of the major changes occurred in the area of tax depreciation.  First, Section 179, which was capped at $500,000 and phased out at $2M of additions, for 2010 and 2011, is scheduled to drop to $139,000 and the phase out is scheduled to drop to $560,000 for 2012, unless Congress decides to retroactively increase these amounts.  Second, Section 179 was expanded to include up to $250,000 of "qualified leasehold improvement" property for 2010 and 2011, but this provision has expired for 2012.  Third, "qualified leasehold improvements" which had a 15-year life for tax depreciation purposes in 2010 and 2011, will now be required to use a 39-year tax life for 2012.  Finally, bonus depreciation, which was allowed for "qualified MACRS property" (generally, tangible property with a useful tax life less than 20 years) up to 50% of the cost basis from 1/1/10 through 9/8/10, was then expanded to 100% of the cost basis from 9/9/10 through 12/31/11, but has now dropped back to 50% (for most assets) for 2012.  Based on the previous tax life change, qualified leasehold improvements would no longer be eligible for bonus depreciation beginning in 2012. The majority of the other common tax figures, such as personal exemptions ($3,800), standard deductions ($11,900 MJ and $5,950 S), etc. have been adjusted slightly each year for inflation.  Others, such as the "kiddie tax" limitations ($1,900), annual gift exclusion ($13,000), etc. have remained unchanged.  Finally, there are still others, such as the estate tax (where the maximum tax rate of 35% remained unchanged from 2010 to 2012, but the federal estate tax exemption fluctuated from unlimited in 2010, to $5M in 2011, and $5.12M in 2012) the employee portion of social security (which decreased from 6.2% in 2010 to 4.2% in 2011 and for the first 2 months of 2012, but was scheduled to go back up to 6.2% for the remainder of 2012), and the residential energy credit (which was limited to $1,500 in total for 2010 and 2011, and is now limited to $500 in total for 2012, which includes amounts already taken in previous years). Please consult the tax professionals at Urish Popeck to assist you with these tax changes for 2011, as well as tax planning for 2012.  
Categories: Tax

IRS Enforcement Efforts Escalate

by Rocco Romano 18. November 2011 14:14
Look out if you owe the IRS.  The Internal Revenue Service has hired new and vigorous revenue officers who have been given the green light to go to people’s homes and businesses.  Treasury Secretary Timothy Geithner says the IRS will be more forceful in collecting back taxes and prosecuting Americans accused of tax evasion. This cautionary sentiment  comes as a result of both the Obama administration and U.S. lawmakers recognizing  that current economic conditions will probably result in less revenue collected from taxpayers, considering the high unemployment and more than half the population not paying income tax. According to the IRS,  tax debt which includes unpaid taxes, penalty and interest charges, totaled $300 billion at the end of the fiscal year.  The Internal Revenue Service has a process for collecting unpaid tax debts by notifying taxpayers through notices, telephone calls, and in person. That process is set to escalate, as the IRS plans to be more proactive than ever before. 
Categories: Tax

Are YOU Prepared for the New Local Income Tax System?

by Tim Caskey 18. July 2011 10:16
You may have heard about the Pennsylvania State legislature’s plan to restructure and streamline the local earned income tax (EIT) collection system. Act 32, which was passed in 2008, provides for the local EIT to be collected by each county rather than 560 different localities. Each county other than Philadelphia and Allegheny will have one tax collector. Allegheny County, encompassing Pittsburgh and surrounding municipalities, will have four tax collection districts. Philadelphia City/County will continue using its own consolidated tax system. Beginning January 1, 2012, employers will need to follow the new withholding rules and remit local income taxes withheld from employee paychecks to their designated tax collector. Here are the basics of compliance: 1. Each of your employees will fill out the form located at http://www.newpa.com/webfm_send/1738 This form certifies the employee’s address and your place of business, using uniform codes for each municipality. 2. Employers are required to withhold local income tax at a rate which is the higher of: a. The resident EIT rate for the municipality where the employee resides; or b. The non-resident EIT rate for the municipality where the employee is employed. 3. Employers with multiple locations in Pennsylvania may remit all withholding amounts to the county tax collection district where they are headquartered. If you choose this option, you will be required to remit electronically on a monthly basis. 4. For more information, there is an informative FAQ link and other information at http://www.newpa.com/get-local-gov-support/tax-information/dceds-act-32-eit-collection-system
Categories: Tax