Friday, November 30, 2007

New Refundable Credit for Unused AMT Credit

Under the Tax Relief and Health Care Act of 2006, enacted on December 20, 2006, new rules were added to permit a refundable credit for certain old unused alternative minimum tax credits. As a result, an individual's minimum tax credit that is allowable for any tax year beginning before 2013 cannot be less than the "AMT refundable credit amount," which is the greater of:

(i) The lesser of $5,000 or the long-term unused minimum tax credit; or
(ii) 20 percent of the long-term unused minimum tax credit.

The long-term unused minimum tax credit for any tax year is the portion of the minimum tax credit attributable to the adjusted net minimum tax (ANMT) for tax years before the third tax year immediately preceding the current tax year. For this determination, credits are treated as allowed on a first-in, first-out basis.

The minimum tax credit for any tax year is the excess (if any) of the ANMT for all prior tax years beginning after 1986 over the minimum tax credit allowable for those years.

The ANMT generally is the net minimum tax reduced by the amount that would have been the net minimum tax if only exclusion-type preferences and adjustments were considered.

The new refundable credit is reduced by the percentage reduction in the personal exemption deduction if an individual's adjusted gross income (AGI) for any tax year exceeds the threshold for phasing-out that deduction.

Example (1):
John has unused AMT credit carryover from 2003 to 2007 of $3,000, and doesn’t have enough AMT income (AMTI) for a phaseout. John would be refunded $3,000 under (i) above.

Example (2):
Jane has unused AMT credit carryover from 2003 to 2007 of $100,000, and doesn’t have enough AMTI for a phaseout. Jane would be refunded $20,000 under (ii) above.

If the minimum tax credit determined under the "old law" for a taxable year is greater than the refundable credit, no additional refundable credit is allowed. The refundable credit is phased out for higher-income taxpayers based on the same ratio as applies to phase out personal exemptions. The phase out is two percentage points for each $2,500, or $1,250 for married persons filing a separate return, (or fraction thereof) by which the taxpayer’s adjusted gross income exceeds certain threshold amounts, to a maximum of 100%. For 2007, the threshold amounts are $234,600 for joint filers or a surviving spouse, $195,550 for a head of household, $156,400 for single taxpayers, and $117,300 for married persons, filing separately.

Example (3):
Jane, a single person who is not a head of household, would otherwise qualify for a refundable credit of $20,000 for 2007. Her adjusted gross income is $200,000. Her phaseout is $200,000 - $156,400 = $43,600 / $2,500 = 18% (rounded) X 2% =36%. Her allowable credit is 100% - 36% = 64% X $20,000 (tentative refundable credit) = $12,800.

Example (4):
In 2007, John's AGI causes a 50 percent reduction in his personal exemption deduction. John's regular tax is $45,000 and his tentative minimum tax is $40,000. His minimum tax credit for 2007, before the limitation, is $1.1 million, of which $1 million is a long-term unused minimum tax credit.

The 2007 AMT refundable credit is $100,000 (20 percent of the $1 million long-term unused minimum tax credit less the 50 percent reduction mentioned at the beginning of this example). The 2007 minimum tax credit allowable also is $100,000 (the greater of the AMT refundable credit or the credit otherwise allowable).

The $5,000 credit allowable without regard to this new law is not refundable. However, the additional $95,000 credit allowable under the new law is refundable. Thus, John has a $55,000 overpayment. The remaining $1 million minimum tax credit is carried forward.

For a draft copy of the tax form used to claim the tax credit, click here.

Tuesday, November 27, 2007

Mileage rate for 2008

The IRS has just announced mileage rates for 2008:
Business: 50.5 cents per mile, up from 48.5 cents in 2007
Medical and moving: 19 cents per mile, from 20 cents a mile in 2007
Charities: 14 cents per mile, no change from 2007 as rate is set by Congress

See http://www.irs.gov/newsroom/article/0,,id=176030,00.html for the official IRS notice.

Sunday, November 11, 2007

Friday, November 9, 2007

2008 SDI rates

The EDD has announced the 2008 SDI rate.

The rate is .008 (up from .006 in 2007)

The wage maximum is: $86,698 (up from 2007 maximum of $83,389)

The maximum SDI per employee is: $693.58 (up from 2007 maximum of $500.33)

Other 2008 EDD rates are available at EDD's website at
http://www.edd.ca.gov/taxrep/taxrte9x.htm#Withhold

Thursday, November 8, 2007

Chairman Rangel's tax proposal

The House Ways and Means Committee passed HR 3970 and its companion bill, HR 3996, recently which Chairman Charlie Rangel labelled it as the "mother of all tax reforms". However, pundits have called this Bill D.O.A., not just opposed by the White House, but threat from the Senate as well. Nevertheless, it's always interesting to see what the politicians are thinking. Click here for a Congressional summary of HR 3970 and here for the text of the Bill. Click here for a summary of HR 3996.

Monday, November 5, 2007

New Chinese, Korean, Russian and Vietnamese Tax Glossaries

The IRS has issued 5 new glossaries of tax terminology designed to help foreign-language communities understand federal tax forms and publications written in English.
Publication 850 (EN/CN-S), English-Chinese (Simplified) Glossary of Words and Phrases
Publication 850 (EN/CN-T), English-Chinese (Traditional) Glossary of Words and Phrases
Publication 850 (EN/KR), English-Korean Glossary of Words and Phrases
Publication 850 (EN/RU), English-Russian Glossary of Words and Phrases
Publication 850 (EN/VN), English-Vietnamese Glossary of Words and Phrases

A Spanish version was previously available.

Friday, November 2, 2007

Limit your Loss

Summarized from http://www.privacyrights.org/fs/fs32-paperplastic.htm

With the holiday shopping season around the corner, Americans will not only stack up gifts, but rack up credit card purchases. As spending increases, so does the likelihood of falling victim to identity theft or fraud schemes.

Each payment method—including credit or debit cards, cash, checks or electronic payments—carries varying consumer protections and potential out-of-pocket costs in the event of theft or fraud.

The Privacy Rights Clearinghouse, a nonprofit consumer information and advocacy organization, offers these tips for safe shopping, and in the event of fraud, how to recoup your losses:

▸ Take home receipts. Save them or shred later instead of throwing them in a store’s trash (they may have your account number printed on them).

▸ Avoid suspicious-looking ATMs and card readers. They can be scams. Counterfeit cards can be made by “skimming” checkout-lane card readers, where account data from cards’ magnetic strips are secretly copied.

▸ For online purchases, use credit cards. Especially when dealing with unfamiliar or auction sites, they may offer better legal remedies against unauthorized purchases and billing errors than debit cards, which present direct access to your checking accounts.

▸ Report fraudulent charges immediately. The Fair Credit Billing Act limits your loss on credit cards to $50, but you must notify the card company within 60 days. For debit cards and electronic transfers, however, your liability remains $50 but must be reported to your financial institution within two business days.

▸ Write checks only to people you know. They include both your account number and bank routing number, making your account easily accessible to fraudsters.