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

Tax Court Continues to Crack Down on FLPs

by Dennis Stuchell 8. February 2012 08:45
A recent U.S. Tax Court case (Estate of Liljestrand) reminds us that proper planning is essential when forming a Family Limited Partnerhship (FLP).  The Court included the FLP assets in the estate and hit the taxpayer for an additional $2.5 million in estate taxes.  The Court stated a number of structural problems in their opinion such as failure to keep proper books and records, commingling of personal and FLP funds, and lack of a proper valuation. You can find more detail on Estate of Liljestrand in Trusts & Estates. This case is just one more demonstration of the importance of careful planning  and due diligence when your family's succession plan is at stake.  Be sure to choose proven valuation and tax professionals that are well qualified to assist with the critical task of transferring wealth to the next generation.
Categories: Advisory | Tax

$3.7 Billion in Valuation Discounts

by Dennis Stuchell 25. July 2011 09:09
“There were 102,608 gifts given in 2008 against which valuation discounts were taken,” reports IRS economist Melissa J. Belvedere in the recent IRS publication 2008 Gifts, “and the dollar value of these discounts totaled $3.7 billion.” Of the 234,714 returns filed for Gift Year 2008, the majority of the returns were nontaxable. A grand total of $40.2 billion was transferred to 927,554 recipients. Family trusts were the most commonly used vehicle to make indirect gifts. While the total nontaxable gifts dropped to the lowest point in the last three years, taxable gifts increased for the third year in a row. An interesting note is that men gave less cash as gifts compared to women, while men gave more stock as gifts then women. The majority of discounts exceeded 40% of the reported fair market value of the gifts. According to Belvedere “approximately 43.6% of discounted assets were stock, while real estate made up 21.1% of discounted assets.” Remember, the statistics are for 2008 gifts, and the IRS’s posture towards these discounts for gifts in 2009 and later might be different given the current U.S. deficit woes. Most gifts were given directly (69.1%, $27.8 billion) to children or grandchildren (48.9% and 24.7%, respectively), while gifts to other relatives or organizations totaled just 11.3%. Cash made up the largest share of total gifts at 46.3% ($14.2 billion) for nontaxable returns and 53.3% ($5.1 billion) on taxable returns.
Categories: Advisory