South-western Federal Taxation 2018: Individual Income Taxes
41st Edition
ISBN: 9781337385886
Author: William H. Hoffman, James C. Young, William A. Raabe, David M. Maloney, Annette Nellen
Publisher: Cengage Learning
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Question
Chapter 12, Problem 54CP
To determine
Determine R’s taxable income and regular tax liability and Alternative Minimum Taxable Income (AMTI). Also, find whether he has an AMT liability.
Expert Solution & Answer
Explanation of Solution
Determine R’s taxable income and regular tax liability.
| Calculation of taxable income and regular tax liability | ||
| Description | Amount | |
| Salary | $650,000 | |
| Long-term | $1,100 | Refer working note 1 |
| Interest income | $23,000 | Refer working note 2 |
| Lottery winnings | $60,000 | |
| Life insurance proceeds | $0 | Refer working note 3 |
| Adjusted Gross income before rental loss | $734,100 | |
| Real estate rental loss | $0 | Refer working note 4 |
| Adjusted Gross income | $734,100 | |
| Less: Itemized deductions: | $(30,100) | Refer working note 5 |
| Taxable income | $704,000 | |
| Regular income tax liability | $225,983 | Refer working note 6 |
Compute R’s AMT (alternative minimum tax).
| Calculation of AMT | ||
| Particulars | Amount | |
| Taxable income | $704,000 | |
| Add: Adjustments and preferences | ||
| Incentive stock option adjustment | $6,000 | Refer working note 7 |
| State and local income taxes | $8,900 | |
| Interest on private activity bonds | $30,000 | |
| Alternative minimum taxable income (AMTI) | $748,900 | |
| Less: Exemption | $(8,075) | Refer working note 8 |
| AMT base | $740,825 | |
| TMT | $203,521 | Refer working note 9 |
| Less: Regular Income tax liability | $225,983 | Refer working note 6 |
| AMT | $0 | |
Calculate R’s tax owned or (refund due).
| Calculation of total tax liability | |
| Particulars | Amount |
| Regular income tax liability | $225,983 |
| Alternative minimum tax | $0 |
| Total tax liability | $225,983 |
| Less: Estimated tax payments | (210,000) |
| Tax owned | $15,983 |
Working Note (1):
Long-term capital gain of $13,100 is offset by long-term capital loss of $12,000. Hence, net long-term capital gain is $1,100
Working Note (2):
$30,000 of interest on private activity bonds and $40,000 of other tax-exempt interest is excluded from gross income. $23,000 of interest income on growth stock is included in gross income.
Working Note (3):
The life insurance proceeds of $800,000 are excluded from gross income.
Working Note (4):
Calculate the amount of loss on rental property.
R is an active participant. Hence, he may deduct a loss of $35,000
Working Note (5):
Calculate itemized deductions.
| Calculation of itemized deduction | |
| State and local income taxes | $8,900 |
| Gambling losses | $8,000 |
| Charitable contributions | $13,200 |
| Itemized deductions | $30,100 |
Note: Consumer interest of $4,200 is not deductible. As the assistant is not the dependent of R, Medical expense of $15,000 is not deductible.
Working Note (6):
Calculate regular income tax liability.
Working Note (7):
Calculate the amount of incentive stock option adjustment.
Working Note (8):
Determine the AMT exemption (files as single taxpayer).
Working Note (9):
Calculate the amount of tentative minimum tax.
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Chapter 12 Solutions
South-western Federal Taxation 2018: Individual Income Taxes
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