Acct 3510 Chapter 7 Notes

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Chapter 7 Individual Income Tax Computation and Tax Credits INSTRUCTOR’S MANUAL Learning Objectives 1. Determine a taxpayer’s regular tax liability and identify tax issues associated with the process. 2. Compute a taxpayer’s alternative minimum tax liability and describe the tax characteristics of taxpayers most likely to owe the alternative minimum tax. 3. Calculate a taxpayer’s employment and self-employment taxes payable and explain tax considerations relating to whether a taxpayer is considered to be an employee or a self-employed independent contractor. 4. Describe the different general types of tax credits, identify specific tax credits, and compute a taxpayer’s allowable child tax credit, child…show more content…
d) Alternative Minimum Taxable Income (AMTI) i) Exemptions, standard deduction, and itemized deduction phase-out 1) Add exemption amounts and the standard deduction (if deducted it for regular tax purposes) back to regular taxable income in determining AMTI. 2) Subtract amount of itemized deductions that were phased out for regular tax purposes. ii) Other Adjustments 1) Refer Exhibit 7-4 for Common AMT Adjustments 2) The major itemized deductions that are deductible for both regular tax and AMT purposes using the same limitations for both systems are a) Casualty and theft losses. b) Charitable contributions. c) Home mortgage interest expenses d) Gambling losses. 3) Deductions that are deductible for regular tax and AMT purposes but have different limitations for each system are a) Medical expenses (10% floor for AMT purposes if the taxpayer (or his or her spouse) is age 65 or older). All other taxpayers have a 10% floor for regular tax and AMT purposes. b) Home-equity interest (must use loan proceeds to improve the home in order to be deductible for AMT purposes). c) Investment interest expense. e) AMT Exemption i) Allows taxpayers to determine their alternative tax base to deduct an AMT exemption. ii) The exemption is phased-out (reduced) by 25 cents for every dollar the AMTI exceeds the threshold amount.

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