Why is this Topic Important to Wealth Managers? This blogticle provides discussion and analysis on the alternative minimum tax and how it’s calculated in 2011. For wealth managers who are closely integrated with client planning, knowledge of the AMT and how it affects clients is integral to overall wealth management.

Present law imposes an alternative minimum tax (‘‘AMT’’) on individuals. The AMT is the amount by which the tentative minimum tax exceeds the regular income tax.[1] An individual’s tentative minimum tax is the sum of (1) 26 percent of so much of the taxable excess as does not exceed $175,000 ($87,500 in the case of a married individual filing a separate return) and (2) 28 percent of the remaining taxable excess.[2]

The taxable excess is so much of the alternative minimum taxable income (‘‘AMTI’’) as exceeds the exemption amount.[3] The maximum tax rates on net capital gain and dividends used in computing the regular tax are used in computing the tentative minimum tax. AMTI is the individual’s taxable income adjusted to account for specified preferences and adjustments.[4]

The AMT exemption amount for taxable years beginning in 2011 is (1) $74,450, in the case of married individuals filing a joint return and surviving spouses; (2) $48,450 in the case of other unmarried individuals; and (3) $37,225 in the case of married individuals filing separate returns.[5]

Generally, present law provides for certain nonrefundable personal tax credits (i.e., the dependent care credit, the credit for the elderly and disabled, the child credit, the credit for interest on certain home mortgages, the Hope Scholarship and Lifetime Learning credits, the credit for savers, the credit for certain nonbusiness energy property, the credit for residential energy efficient property, the credit for certain plug-in electric vehicles, the credit for alternative motor vehicles, the credit for new qualified plug-in electric drive motor vehicles, and the D.C. first-time homebuyer credit).

Under Sec. 202 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 [6] for taxable years including 2011, the nonrefundable personal credits are allowed to the extent of the full amount of the individual’s regular tax and alternative minimum tax.[7]

This extension of the use of nonrefundable credits replaces what would have been a much different tax treatment. In other words, the nonrefundable personal credits (other than the child credit, the credit for savers, the credit for residential energy efficient property, the credit for certain plug-in electric drive motor vehicles, the credit for alternative motor vehicles, and credit for new qualified plug-in electric drive motor vehicles) would have been allowed only to the extent that the individual’s regular income tax liability exceeds the individual’s tentative minimum tax, determined without regard to the minimum tax foreign tax credit. The remaining nonrefundable personal credits would have been allowed to the full extent of the individual’s regular tax and alternative minimum tax.

For more information on the AMT see generally AMAFX Tax Facts How is the Alternative Minimum Tax calculated?

Next week’s blogticles will present interesting planning concepts for wealth managers.

We invite your questions and comments by posting them below, or by calling the Panel of Experts.

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[1] IRC Sec. 55(a).

[2] IRC Sec. 55(b).

[3] IRC Sec. 55(b)(1)(A)(i)(II).

[4] See IRC Sec. 55(b)(2).

[5] IRC Sec. 55(d).

[6] Public Law 111–312.

[7] See IRC 26(a).

Tax and insurance advisors looking for answers on how the new Tax Relief Act of 2010 will impact their clients are finding them in The National Underwriter Company’s just-published Selected Provisions and Analysis of the Tax Relief Act of 2010.  The proprietary analysis is the only practitioners’ guide in Q&A format that answers the most critical questions asked by clients on insurance, estate and gift tax law changes.

Copies of the 64-page report are available for only $12.95 plus shipping and handling here.  Producers and their companies can also license use of their logos and contact information directly on the cover of the guide for a marketing and client-management tool.

National Underwriter’s wealth management experts and report authors, Professor William H. Byrnes, Esq., LL.M, CWM and Robert Bloink, Esq., LL.M., noted, “While most media attention has focused on the Act’s retention of existing tax rates on the highest-earning Americans, tax, insurance and investment advisors are finding that the most important changes, from their perspective, are likely to be found in insurance, estate and gift tax provisions that will drive client decisions on investment strategy and wealth management priorities in 2011 and beyond.”

Rick Kravitz, Vice President & Managing Director of Summit Business Media’s Reference Division, said, “This proprietary analysis – compiled by leading experts in the field – demonstrates National Underwriter’s commitment to bringing timely and critical updates to advisors and financial planners so that they can successfully build their practices and better serve their clients.”

Prof. Byrnes, a former Coopers & Lybrand associate director in international tax and now Dean of the wealth management graduate program at Thomas Jefferson School of Law, noted that the 64-page analysis has answers to more than 100 important questions in these areas:

• Income Tax
• Estate and Gift Tax
• Generation Skipping Transfer Tax
• Deduction for State and Local Sales Taxes
• Alternative Minimum Tax
• Tax Credits
• Payroll Tax Holiday
• Wage Credit for Employees Who Are Active Duty Members of the Military
• Charitable Distributions from Retirement Accounts
• Bonus Depreciation and Section 179 Expensing
• Basis Reporting Requirements for Brokers and Mutual Funds
• Regulated Investment Company Modernization Act of 2010
• Health Care Act
• Form 1099 Reporting Requirement for Businesses
• American Jobs and Closing Tax Loopholes Act of 2010
• Requirements for Tax Return Preparers

“This is the only guide available on the market today that gives financial planners and producers issue-specific, time-critical information in Q&A format that addresses their most important technical questions with content that can also be used directly in client presentations,” Prof. Byrnes added.  “The unique combination of The National Underwriter Company’s editorial staff and the resources and professional experience of the wealth management faculty at Thomas Jefferson School of Law provides assurance that these are answers that can be counted on.”

About The National Underwriter Company

For over 110 years, The National Underwriter Company has been the first in line with the targeted tax, insurance, and financial planning information you need to make critical business decisions.  With respected resources available in print, on CD, and online, National Underwriter remains at the forefront of the evolving insurance industry, delivering the thorough and easy-to-use resources you rely on for success.  National Underwriter is a Summit Business Media company.

About Summit Business Media

Summit Business Media is the leading B2B media and information company serving the insurance, investment advisory, professional services and mining investment markets through a variety of channels, including print, online and live events.  Summit provides breaking news and analysis, in-depth practice management strategies, business-building techniques and actionable data to the markets it serves. Through its Media and Reference Divisions, Summit publishes 16 magazines, 20 websites and 150 reference titles. Summit’s Event Division hosts a dozen conferences across the spectrum of markets the company services.  Summit’s Data Division is the leading data provider of financial, marketing and benefits information on corporations, insurance companies and life, benefits and property-casualty agents.

Summit employs nearly 400 employees in ten offices across the United States.  For more information, please visit summitbusinessmedia.com.

New York, February 4, 2011  — Tax and insurance advisors looking for answers on how the new Tax Relief Act of 2010 will impact their clients are finding them in The National Underwriter Company’s just-published Selected Provisions and Analysis of the Tax Relief Act of 2010.  The proprietary analysis is the only practitioners’ guide in Q&A format that answers the most critical questions asked by clients on insurance, estate and gift tax law changes.

Copies of the 64-page report are available for only $12.95 plus shipping and handling here.  Producers and their companies can also license use of their logos and contact information directly on the cover of the guide for a marketing and client-management tool.

National Underwriter’s wealth management experts and report authors, Professor William H. Byrnes, Esq., LL.M, CWM and Robert Bloink, Esq., LL.M., noted, “While most media attention has focused on the Act’s retention of existing tax rates on the highest-earning Americans, tax, insurance and investment advisors are finding that the most important changes, from their perspective, are likely to be found in insurance, estate and gift tax provisions that will drive client decisions on investment strategy and wealth management priorities in 2011 and beyond.”

Rick Kravitz, Vice President & Managing Director of Summit Business Media’s Reference Division, said, “This proprietary analysis – compiled by leading experts in the field – demonstrates National Underwriter’s commitment to bringing timely and critical updates to advisors and financial planners so that they can successfully build their practices and better serve their clients.”

Prof. Byrnes, a former Coopers & Lybrand associate director in international tax and now Dean of the wealth management graduate program at Thomas Jefferson School of Law, noted that the 64-page analysis has answers to more than 100 important questions in these areas:  

• Income Tax
• Estate and Gift Tax
• Generation Skipping Transfer Tax
• Deduction for State and Local Sales Taxes
• Alternative Minimum Tax
• Tax Credits
• Payroll Tax Holiday
• Wage Credit for Employees Who Are Active Duty Members of the Military
• Charitable Distributions from Retirement Accounts
• Bonus Depreciation and Section 179 Expensing
• Basis Reporting Requirements for Brokers and Mutual Funds
• Regulated Investment Company Modernization Act of 2010
• Health Care Act
• Form 1099 Reporting Requirement for Businesses
• American Jobs and Closing Tax Loopholes Act of 2010
• Requirements for Tax Return Preparers  

“This is the only guide available on the market today that gives financial planners and producers issue-specific, time-critical information in Q&A format that addresses their most important technical questions with content that can also be used directly in client presentations,” Prof. Byrnes added.  “The unique combination of The National Underwriter Company’s editorial staff and the resources and professional experience of the wealth management faculty at Thomas Jefferson School of Law provides assurance that these are answers that can be counted on.”

About The National Underwriter Company

For over 110 years, The National Underwriter Company has been the first in line with the targeted tax, insurance, and financial planning information you need to make critical business decisions.  With respected resources available in print, on CD, and online, National Underwriter remains at the forefront of the evolving insurance industry, delivering the thorough and easy-to-use resources you rely on for success.  National Underwriter is a Summit Business Media company.

About Summit Business Media

Summit Business Media is the leading B2B media and information company serving the insurance, investment advisory, professional services and mining investment markets through a variety of channels, including print, online and live events.  Summit provides breaking news and analysis, in-depth practice management strategies, business-building techniques and actionable data to the markets it serves. Through its Media and Reference Divisions, Summit publishes 16 magazines, 20 websites and 150 reference titles. Summit’s Event Division hosts a dozen conferences across the spectrum of markets the company services.  Summit’s Data Division is the leading data provider of financial, marketing and benefits information on corporations, insurance companies and life, benefits and property-casualty agents.

Summit employs nearly 400 employees in ten offices across the United States.  For more information, please visit summitbusinessmedia.com.

# # #

PRESS CONTACT:

Richard Niles, J.D.

Summit Business Media

201-526-2335

rniles@sbmedia.com 

Why is this Topic Important to Wealth Managers? Presents key issues surrounding the Internal Revenue Service as discussed by the National Taxpayer Advocate.

Last month the National Taxpayer Advocate Nina E. Olson released her annual report to Congress, identifying the need for tax reform as the number one priority in tax administration.  The report also examines challenges the IRS is facing in implementing the new health care law.  Below is a highlight of some points made in the report: [1]

Tax Reform

“There has been near universal agreement for years that the tax code is broken and needs to be fixed,” Olson said in releasing the report.  “Yet no broad-based attempt to reform the tax code has been made.  This report documents the burdens the tax code imposes on taxpayers and explores why many taxpayers may nevertheless feel wedded to key aspects of the current system, undermining efforts at reform.”

Analysis of IRS data shows that taxpayers and businesses spend 6.1 billion hours a year complying with tax-filing requirements.  “If tax compliance were an industry, it would be one of the largest in the United States,” the report says.  “To consume 6.1 billion hours, the ‘tax industry’ requires the equivalent of more than three million full-time workers.”

The report acknowledges that Congress may at some point raise tax revenues to address the nation’s long-term fiscal challenges.  However, the report suggests that Congress first enact structural tax reform on a revenue-neutral basis and keep separate the decision whether to adjust tax rates.

The report suggests additional core principles for tax reform and summarizes key simplification proposals the Advocate’s office has made in past reports, including repealing the Alternative Minimum Tax for individuals and consolidating the number of incentives that encourage taxpayers to save for education and retirement.

New Challenges

Historically, the IRS’s mission has been to collect taxes, but in recent years, Congress has directed the IRS to administer an increasing number of social benefits programs, including Economic Stimulus Payments, the First-Time Homebuyer Credit, and the Making Work Pay Credit.  The recent directive to administer major aspects of the new health care law will add significantly to the IRS’s workload.

The IRS will administer four key provisions of the new law: the Small Business Tax Credit, the Premium Assistance Credit, the Individual Responsibility Requirement, and the Employer Requirement.  Among the challenges the IRS faces is determining the types of new information it needs to gather, determining the new entities it needs to work with, resolving privacy issues, and implementing a new definition of income, the report says.

“From an organizational standpoint, there are substantial differences between benefits agencies and enforcement agencies in terms of culture, mindset, and the skill sets and training of their employees,” Olson said.  “As the IRS prepares to administer large portions of the health care legislation, it will have to shift from being an enforcement agency that primarily says, in effect, ‘you owe us’ to an agency that places much greater emphasis on hiring and training caseworkers to help eligible taxpayers receive benefits and work one-on-one with taxpayers to resolve legitimate disagreements.”

The report even goes as far to point out that the IRS has a “mission statement” that should serve as its foundation and around which its strategic plan, operational priorities, budget, and performance measures should be built.  In light of the IRS’s expanded responsibilities, the report recommends that the IRS revise its mission statement to recognize explicitly its dual roles as tax collector and benefits administrator.

Next week’s blogticles will continue our discussion on additional changes and hot topics in 2011.

We invite your opinions and comments by posting them below, or by calling the Panel of Experts.

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[1] The full report and executive summary may be found at http://www.taxpayeradvocate.irs.gov/Media-Resources/Annual-Report-To-Congress-Full-Report.  Last Accessed 2/3/2011.

Written by the foremost experts in the field - Professor William H. Byrnes, Esq., LL.M, and Robert Bloink, Esq., LL.M

Understand the Act’s Implications for You and Your Clients

• Analyzes important insurance, estate, gift, and other elements of the Act
• Provides pertinent information on other important 2010 tax developments
• Convenient Q&A format speeds you to the information you need – with answers to over 100 important questions

Summary Table of Contents

• Analysis of the Tax Relief Act of 2010
  • Income Tax Provisions
  • Estate Tax Provisions
  • Generation Skipping Transfer Tax
  • Deduction for State and Local Sales Taxes
  • Alternative Minimum Tax
  • Tax Credits
  • Payroll Tax Holiday
  • Wage Credit for Employees who are Active Duty Members of the Military
  • Charitable Distributions from Retirement Accounts
  • Bonus Depreciation and Section 179 Expensing
  • Basis Reporting Requirements for Brokers and Mutual Funds
  • Regulated Investment Company Modernization Act of 2010
  • Health Care Act
  • Form 1099 Reporting Requirement for Businesses
  • American Jobs and Closing Tax Loopholes Act of 2010
  • Requirements for Tax Return Preparers

Product Information:

Softcover/64 pages total;  42 pages of questions and answers

Publication Date: January 2011

Publication Number: 1350011

Price: $12.95 + shipping & handling and applicable sales tax

To order:

• Call 1-800-543-0874
• Visit http://www.nuco.com/tax

With our Custom Imprint program, you can place your company’s logo on the cover of this analysis and you’ll leave a lasting impression.  Call 1-800-543-0874 for additional information.

President Obama’s tax compromise—the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act)—includes a much needed alternative minimum (AMT) patch that will keep middle class taxpayers from being caught up in the AMT in 2010 and 2011. Without the patch, an additional 20 million taxpayers would have been snared by the AMT in 2010.

As reported earlier this year in Advisor’s Journal [see Finance Committee Promises AMT Patch (CC 10-100)], the IRS previously indicated that it would be forced to delay the AMT filing date if Congress did not pass a patch until late 2010. Any delay would hurt taxpayers who are owed an AMT refund. The patch was signed on December 17, 2010, but it is not clear whether that late date of passage will push back next year’s AMT filing date.  Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the AMT in Advisor’s Journal, see Finance Committee Promises AMT Patch (CC 10-100).

For in-depth analysis of the AMT, see Advisor’s Main Library: Section 19.D—Additional Taxes; Credits For Prepayments.

Why is this Topic Important to Wealth Managers?  Presents discussion on the Alternative Minimum Tax Exemptions that wealthy clients may consider in the calculation of his or her tax liability, generally, as high income earners.

“For more than three decades, the individual income tax has consisted of two parallel tax systems: the regular tax and an alternative tax that was originally intended to impose taxes on high-income individuals who have no liability under the regular income tax.” [1]

Current law imposes an alternative minimum tax (AMT) only on individuals.  “The stated purpose of the alternative minimum tax (AMT) is to keep taxpayers with high incomes from paying little or no income tax by taking advantage of various preferences in the tax code.” [2]

The parallel tax structure to the regular income tax law requires individuals “to recalculate their taxes under alternative rules that include certain forms of income exempt from regular tax and that do not allow specific exemptions, deductions, and other preferences.” [3]

Generally, the AMT is an amount that is the excess of the “tentative minimum tax” over the regular income tax.

Tentative minimum tax is equal to the sum of (1) 26 percent of so much of the taxable excess as does not exceed $175,000 ($87,500 in the case of a married individual filing a separate return) and (2) 28 percent of the remaining taxable excess, which is essentially an individual’s taxable income adjusted to take into account certain specified preferences and adjustments (also known as alternative minimum taxable income (“AMTI”)) minus the exemption amount.

In addition, the maximum tax rates on net capital gain and dividends used in computing the regular tax are used in computing the tentative minimum tax.

The Obama Tax Cuts extend the exemption amount beginning in 2010.  The exemption amounts for this year are (1) $72,450, in the case of married individuals filing a joint return and surviving spouses; (2) $47,450 in the case of other unmarried individuals; and (3) $36,225 in the case of married individuals filing separate returns.

Starting in 2011, the individual AMT exemption amounts are (1) $74,450, in the case of married individuals filing a joint return and surviving spouses; (2) $48,450 in the case of other unmarried individuals; and (3) $37,225 in the case of married individuals filing separate returns.

In addition, certain nonrefundable personal credits may be used to reduce the taxpayer’s traditional tax liability as well as his or her AMT tax liability.[4] These personal credits include, dependent care credit, the credit for the elderly and disabled, the child credit, the credit for interest on certain home mortgages, the Hope Scholarship and Lifetime Learning credits, the credit for savers, the credit for certain nonbusiness energy property, the credit for residential energy efficient property, the credit for certain plug-in electric vehicles, the credit for alternative motor vehicles, the credit for new qualified plug-in electric drive motor vehicles, and the D.C. first-time homebuyer credit.

Since its initiation, “the AMT has affected few taxpayers, less than 1 percent in any year before 2000, but its impact is expected to grow rapidly in coming years and affect about one-fifth of all taxpayers in 2010.” [5] Furthermore, the Internal Revenue Service’s National Taxpayer Advocate, Nina Olson, labeled the AMT “the most serious problem faced by taxpayers.” [6]

For further discussion on the calculation of the AMT see generally, AdvisorFX: How is the alternative minimum tax calculated.

Tomorrow’s blog will continue to discuss pertinent provisions of the new Tax Cuts and how they relate to wealth managers.

We invite your questions and comments by posting them below, or by calling the Panel of Experts.

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[1] Congressional Budget Office.  Revenue and Tax Policy Brief.  A series of issue summaries from the Congressional Budget Office No. 4, April 15, 2004.  “The Alternative Minimum Tax”.  http://www.cbo.gov/doc.cfm?index=5386&type=0.  Last Accessed 12/27/2010.

[2] Congressional Budget Office. Revenue and Tax Policy Brief (April 15, 2004).

[3] Id.

[4] 26 U.S.C. 26(a).

[5] Congressional Budget Office. Revenue and Tax Policy Brief (April 15, 2004).

[6] Internal Revenue Service.   National Taxpayer Advocate 2003 Annual Report to Congress at 5.  December 31, 2003.

Determined to shuck common stereotypes about lame duck sessions of Congress, lawmakers returning to the capital after Thanksgiving break have filled their calendars with tax-related meetings and legislation—including White House visits intended to flesh out a compromise on the Bush tax cuts. Also on the docket is a repeal of the newly expanded Form 1099 reporting requirement and a sorely needed AMT patch.

The Senate is considering the FDA Food Safety Modernization Act (S. 510), which includes a provision repealing the Health Care Act provision that will expand the reach of the 1099 reporting requirement to anyone in a trade or business making a payment of over $600.  Repeal of the expanded 1099 requirement has support on both sides of the aisle.  Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the Bush tax cuts in Advisor’s Journal, see CBO Analysis Supports Extending Tax Cuts (CC 10-49) and What Lies Beyond the Sunsetting 2010 Tax Provisions (CC 10-88).

For previous coverage of the expanded 1099 reporting requirement in Advisor’s Journal, see Health Care Reform Causes an Avalanche of 1099s (CC 10-84).

For previous coverage of the AMT patch in Advisor’s Journal, see Finance Committee Promises AMT Patch (CC 10-100).

We invite your questions and comments by posting them in our blog AdvisorFYI or by calling the Panel of Experts.

Record numbers of taxpayers will be subject to the 2010 alternative minimum tax (AMT) if Congress does not act by the end of the year. Congress has considered a number of possible AMT “patches” that would reduce the number of taxpayers subject to the AMT but has been unable to agree on the right approach.  Although Congress passes an AMT patch annually, this year’s patch is coming later than usual.

In a November 9, 2010, letter to the IRS’s Douglas Shulman, House Ways and Means and Senate Finance committee members said that the IRS should expect Congress to pass 2010 alternative minimum tax relief by the end of this year. The joint letter was signed by Finance Committee Chair Max Baucus (D-Mont.), Finance Committee ranking minority member Chuck Grassley (R-Iowa), acting Ways and Means Committee Chair Sander M. Levin, (D-Mich.), and Ways and Means Committee ranking minority member Dave Camp (R-Mich.).   Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For in-depth analysis of the AMT, see Advisor’s Main Library: Section 19.D—Additional Taxes; Credits For Prepayments.

We invite your questions and comments by posting them below or by calling the Panel of Experts.

The co-chairs of President Obama’s Fiscal Commission released a preliminary proposal to reduce the deficit by $4 trillion through 2020. The plan would reduce the deficit to 2.2 percent of GDP by 2015, cap government spending and revenue at 21 percent of GDP, and ensure Social Security’s long-term solvency. Perhaps the most dramatic component of the plan is its proposal to completely overhaul the U.S. income tax system by reducing tax rates and eliminating the alternative minimum tax (AMT)—balanced by the elimination of many tax credits and deductions.  Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of Congressional action on the income tax in Advisor’s Journal, see CBO Analysis Supports Extending Tax Cuts (CC 10-49).

We invite your questions and comments by posting them below or by calling the Panel of Experts.