Slide 1SPECIAL TAX COMP METHODS, CREDITS & PAYMENT (1 of 2)SPECIAL TAX COMP METHODS, CREDITS & PAYMENT (2 of 2)Alternative Minimum TaxComputational Aspects (1 of 3)Computational Aspects (2 of 3)Computational Aspects (3 of 3)Tax Preference ItemsAMT Adjustments (1 of 2)AMT Adjustments (2 of 2)Self-Employment (SE) Tax (1 of 3)Self-Employment (SE) Tax (2 of 3)Self-Employment (SE) Tax (3 of 3)Overview of Tax CreditsPersonal Tax Credits (1 of 7)Personal Tax Credits (2 of 7)Personal Tax Credits (3 of 7)Personal Tax Credits (4 of 7)Personal Tax Credits (5 of 7)Personal Tax Credits (6 of 7)Personal Tax Credits (7 of 7)Foreign Tax Credit (1 of 2)Foreign Tax Credit (2 of 2)General Business Credits (1 of 4)General Business Credits (2 of 4)General Business Credits (3 of 4)General Business Credits (4 of 4)Refundable Credits Earned Income CreditPayment of Taxes Withholding of Taxes (1 of 2)Payment of Taxes Withholding of Taxes (2 of 2)Payment of Taxes Estimated Tax Payments (1 of 2)Payment of Taxes Estimated Tax Payments (2 of 2)Tax Planning ConsiderationsCompliance and Procedural ConsiderationsSlide 3514-1©2007 Prentice Hall, Inc.©2007 Prentice Hall, Inc.14-2SPECIAL TAX COMP SPECIAL TAX COMP METHODS, CREDITS & METHODS, CREDITS & PAYMENTPAYMENT (1 of 2) (1 of 2)Alternative minimum taxSelf-employment taxOverview of tax creditsPersonal tax creditsForeign tax creditGeneral business credits©2007 Prentice Hall, Inc.14-3SPECIAL TAX COMP SPECIAL TAX COMP METHODS, CREDITS & METHODS, CREDITS & PAYMENTPAYMENT (2 of 2) (2 of 2)Refundable creditsPayment of taxesTax planning considerationsCompliance and procedural considerations©2007 Prentice Hall, Inc.14-4Alternative Minimum TaxAlternative Minimum TaxComputational aspectsTax preference itemsAMT adjustments©2007 Prentice Hall, Inc.14-5Computational Aspects(1 of 3) Taxable income before NOL+ Tax preference items+ Personal & dependency exemptions+ Standard deduction (if applicable)+/- Adjustments to taxable income Alternative minimum taxable income©2007 Prentice Hall, Inc.14-6Computational Aspects(2 of 3) Alternative minimum taxable income- AMT exemption Alternative minimum tax basex Tax rate 26% on 1st $175K, 28% on excess Tentative minimum tax- Nonrefundable personal credits- Regular tax AMT due (if any)©2007 Prentice Hall, Inc.14-7Computational Aspects(3 of 3)AMT exemption$45,000 MFJ, $33,750 single, & $22,500 MFSReduced by 25% of AMTI in excess of threshold amount$150,000 MFJ, $112,500 single, & $75,000 MFS©2007 Prentice Hall, Inc.14-8Tax Preference ItemsIncludes excess depreciation over S\L depreciationTax-exempt interest on certain private activity bondsExclusion of gain on sale of certain small business stock under §1202©2007 Prentice Hall, Inc.14-9AMT Adjustments(1 of 2)Only itemized deductions allowed for AMT purposesCasualty & theft loss in excess 10% of AGICharitable contributionsMedical expenses in excess of 10% of AGIQualified housing interest©2007 Prentice Hall, Inc.14-10AMT Adjustments(2 of 2)AMT adj. due to timing differencesFor real property placed in service after 1986 and before 1999For personal property placed in service after 1986Difference between MACRS deduction and amount determined by using 150% DB©2007 Prentice Hall, Inc.14-11Self-Employment (SE) TaxSelf-Employment (SE) Tax(1 of 3)(1 of 3)Individuals subject to SE tax on amount of net earnings from self-employmentComputing the taxNet earnings self-employment earnings ≥$400 subject to SE taxMultiply SE income x 92.35% (100% - 7.65%) to determine net SE earnings©2007 Prentice Hall, Inc.14-12Self-Employment (SE) TaxSelf-Employment (SE) Tax(2 of 3)(2 of 3)Computing SE tax (continued)SE tax 15.3% Consist of 12.4% OASDI and 2.9% MedicareOASDI for 2006 is $90,000No limit on the Medicare portion of SE tax½ of SE tax deductible for AGI©2007 Prentice Hall, Inc.14-13Self-Employment (SE) TaxSelf-Employment (SE) Tax(3 of 3)(3 of 3)What constitutes self-employment incomeNet earnings from sole proprietorshipDirector’s feesTaxable research grantDistributive share of partnership income plus guaranteed payments©2007 Prentice Hall, Inc.14-14Overview of Tax CreditsOverview of Tax CreditsUse and importance of tax creditsValue of a credit vs. a deductionClassification of credits©2007 Prentice Hall, Inc.14-15Personal Tax CreditsPersonal Tax Credits(1 of 7)(1 of 7)Child tax credit$1,000 for each qualifying child <17Phased out at $50 per $1,000 over threshold amount$110K MFJ; $75K single; $55K MFSAdoption creditMax of $10,960 credit in year adoption finalizedPhased out between $164,410 – 204,410©2007 Prentice Hall, Inc.14-16Personal Tax CreditsPersonal Tax Credits(2 of 7)(2 of 7)Child and dependent care credit20% - 35% of eligible care expenses to enable taxpayer to be employedUp to $3K ($6K) expenses for 1 (2+) childTax credit for the elderly and disabledFor low-income individuals ≥ 65 who retired due to permanent total disability15% of $5K ($7.5K if both spouses ≥ 65) reduced by certain amounts©2007 Prentice Hall, Inc.14-17Personal Tax CreditsPersonal Tax Credits(3 of 7)(3 of 7)Hope scholarship creditUp to $1,650 credit for tuition and related expenses per studentNot books or room and boardAvailable for 1st two years per student100% of 1st $1,100 plus 50% 2nd $1,100Must be half-time studentQualified expenses eligible for credit reduced by amounts received under other Code secs.©2007 Prentice Hall, Inc.14-18Personal Tax CreditsPersonal Tax Credits(4 of 7)(4 of 7)Hope scholarship creditUp to $1,650 credit for tuition and related expenses per studentNot books or room and boardAvailable for 1st two years per student100% of 1st $1,100 plus 50% 2nd $1,100Must be half-time studentEligible expenses reduced by amounts received under other Code sections©2007 Prentice Hall, Inc.14-19Personal Tax CreditsPersonal Tax Credits(5 of 7)(5 of 7)Hope scholarship credit (continued)Phase out between $90K-110K MFJ; $45K-$55K for other taxpayersLifetime learning creditLess restrictive than Hope credit20% of 1st $10K of eligible expensesNOT per studentOther rules same as Hope credit©2007 Prentice Hall, Inc.14-20Personal Tax CreditsPersonal Tax Credits(6 of 7)(6 of 7)Residential energy credits$500 lifetime credit10% of cost