BUSINESS TAX CREDITS AND CORPORATE ALTERNATIVE MINIMUM TAX

Topics: Taxation in the United States, Taxation, Alternative Minimum Tax Pages: 30 (5482 words) Published: March 17, 2014


CHAPTER 13

BUSINESS TAX CREDITS AND
CORPORATE ALTERNATIVE MINIMUM TAX

SOLUTIONS TO PROBLEM MATERIALS

Status:Q/P
Question/Presentin Prior
Problem  Topic EditionEdition

1Limitation on general business credit for Modified1
individuals
2General business credit carryoversModified2
3Issue recognitionNew
4Rehabilitation expenditures tax creditUnchanged3
5Rehabilitation expenditures tax creditUnchanged4
6Ethics problemUnchanged5
7Work opportunity tax creditUnchanged6
8Welfare-to-work creditUnchanged7
9Incremental research activities creditUnchanged8
10Disabled access creditModified9
11Foreign tax creditUnchanged10
12Exemption from corporate AMT for smallModified11
corporations
13AMT percentage depletion preferenceNew
14AMT adjustment for depreciationUnchanged13
15AMT adjustment for completed contract methodUnchanged14
16Ethics problemUnchanged15
17AMT adjustment for gain or lossUnchanged16
18Issue recognitionUnchanged17
19Computing AMT passive lossUnchanged18
20Calculation of ACENew
21Adjusted current earnings (ACE) adjustmentUnchanged20
22Adjusted current earnings (ACE) adjustmentUnchanged21
23AMT preferencesUnchanged22
24Tentative minimum tax calculationModified23
25AMT calculationUnchanged24
26AMT and alternative tax on net capital gainModified25

13-1

Status:Q/P
Question/Presentin Prior
Problem  Topic EditionEdition

27AMT calculationNew
28Tax preference items and AMT adjustmentsUnchanged27
including private activity bonds

Bridge Discipline
Problem

1General business credit limit and carryoverUnchanged1
2Rehabilitation expenditures credit recaptureUnchanged2
3Inflation adjustment for regular tax ratesUnchanged3

Research/
Problem 

1Rehabilitation expenditures tax creditUnchanged1
2Research activities creditUnchanged2
3AMT: Private activity bondsUnchanged3
4Miscellaneous itemized deductions andNew
damage award
5Internet activityUnchanged4
6Internet activityUnchanged5

PROBLEM MATERIAL

1.Canary’s allowable general business credit for 2002 is limited to $30,000, determined as follows.

Net income tax$190,000*
Less: The greater of:
$160,000 (tentative minimum tax)
$41,250 [25% X ($190,000 - $25,000)](160,000)
Amount of general business credit allowed$ 30,000

* Net income tax = $190,000 (regular tax liability) + $0 [alternative minimum tax ($160,000 tentative minimum tax - $190,000 regular tax liability)] - $0 (nonrefundable credits).

pp. 13-3, 13-4, and Example 2

2.2002 general business credit$50,000
Total credit allowed (based on tax liability)$80,000
Less: Utilization of carryovers
1998(5,000)
1999(15,000)
2000(5,000)
2001(20,000)
Remaining credit allowed$ 35,000
Applied against
2002 general business credit(35,000)
2002 unused amount carried forward to 2003$15,000

Therefore, the sources of the $80,000 general business credit allowed in 2002 are the carryovers of $45,000 from the four previous years and $35,000 of the $50,000 general business credit generated in 2002.

Because unused credits may be carried over for up to 20 years, the carryovers from each of the four previous years may be utilized in 2002.

pp. 13-5, 13-6, and Example 3

3.Among the relevant tax issues for Clint are the following:

Availability of tax credit for rehabilitation expenditures.

Ability to use a nonrefundable credit.

Potential recapture of rehabilitation credit if property is disposed of prematurely.

Self-employment tax calculation.

Need for estimated tax payments.

Calculation of depreciation expense once building is placed in service.

Allocation of expenses between rental and personal use...
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