Business Finance Homework Help

1. Discuss how the Tax Cuts and Jobs Act of 2017      changed the individual AMT.
2. There have been several articles written on the      projected solvency of the Social Security System. When is the fund      projected to run out of money? What are some options to improve the      solvency of the system? How does this potential insolvency impact tax      planning for young individuals?
3. Several states have rules about the taxability of      payments received under a defined benefit plan that are in contrast to the      federal rules. First, discuss why some states choose not to tax those      payments. Next, choose a state that has an income tax and discuss that      state’s laws for taxing this type of income.

Do Discussion and do the response below

Posted 1

The Tax Cuts and Jobs Act (TCJA) of 2017 changed the individual AMT.  With the changes to the Alternative Minimum Tax, the IRS estimates the number of filings will decrease from 10 million filings to 1 million filings annually (York & Muresianu, 2018).  The TCJA increased the AMT exemption to $109,400 for couples filing joint tax returns and increased the phaseout exemption to $1 million dollars for couples filing joint returns (York & Muresianu, 2018).

Under its current status in the tax law, the TCJA of 2017 will return in tax year 2026 when the TCJA expires unless congress makes changes and or extends the law (Tax Policy Center, n.d.)  If these changes are not made before the TCJA of 2017 expires, then the Tax Policy Center estimates that 6.7 million tax payers will have to pay the AMT in 2026 (Tax Policy Center, n.d.).

With the changes to both Congress and the President, there is speculation that there will be changes to the previous administration’s Tax Cuts.  Congress will be looking at ways to make up for the lost revenue due to the loss in AMT revenue by either changing it or finding other places to supplement the income.  There are several ideas from writing the AMT out of the tax code, letting the changes expire which would be disastrous for the middle class, to extending them and leave the limits on mortgage deductions and tax deductions (McClelland, 2019).  The Tax Policy Center estimates this will raise revenues by over $97 billion in 2027 (McClelland, 2019).  No matter what is decided, there is some difficult decisions coming down the road with AMT that could affect millions of taxpayers if left to expire in 4 years. 

Posted 2 

The AMT is the alternative minimum tax system created to make my life as a tax provider more difficult. Seriously, it was enacted by Congress to ensure taxpayers who did not pay tax because they used deductions and incentives provided for in the Internal Revenue Code would pay some tax, at a minimum. It really is a second federal tax system that works alongside the regular federal tax system. Regular federal tax is calculated, and then AMT is calculated, removing some of the incentives, benefits and deductions that are allowed under the federal tax system. The taxpayer pays the regular tax liability plus the AMT if the taxpayer owes AMT after removing the benefits of tax-favored treatments provided for in the Internal Revenue Code (Everett et al., 2016). Over the past several years, millions of taxpayers have found themselves being subject to AMT. That was not the intention of the law.

The Tax Cuts Job Act of 2017 (TCJA) changed the AMT system favorably for taxpayers, reducing the number affected by the AMT. This was done, in part, by increasing the AMT exemption.  Additionally, the income at which the AMT exemption phases out was also increased. Some of the incentives and benefits (tax preference items) that needed to be added back or were disallowed for AMT purposes were repealed or scaled back (Tax Policy Center, 2020). The treatment of those tax preference items (personal exemptions and miscellaneous 2% deductions, for example, which were eliminated under the TCJA) reduced the impact of the AMT. As a result of the changes made to the AMT by the TCJA, the number of taxpayers who paid AMT fell from more than 5 million in 2017 to just 200,000 in 2018. It should be noted that the provisions of the TCJA related to AMT will “sunset” at the end of 2025. Unless Congress acts to extend the provisions, we will see a rise in the number of taxpayers affected by the AMT to pre-TCJA levels.   

Posted 3

Starting out the purpose of the alternative minimum tax (AMT) was to ensure that high income earners pay their fair share of taxes. Majority would abuse the tax system by avoiding paying taxes using deductions and tax credits (Everett et al., 2016). Over the years, many middle-income individuals were affected by the AMT also. With the passing of Tax Cuts and Jobs Act (TCJA) 2017 the individual AMT remained the same; however, the exemption levels and income threshold amounts increased resulting in a decrease of taxpayers subject to the AMT making it less likely to affect lower income levels. (Be Tax Ready, 2019). “Primarily as a result of the changes enacted by the TCJA, TPC projects that the number of AMT taxpayers fell from more than 5 million in 2017 to just 200,000 in 2018 and will remain roughly constant through 2025” (How did the TCJA change AMT, 2020).  

Be Tax Ready – understanding tax reform changes affecting individuals and families |

            Internal Revenue Service. (2019, February). IRS. https://www.irs.gov/newsroom/be-tax-ready-understanding-tax-reform-changes-affecting-individuals-and-families

Everett, J. O., Hennig, C., & Nichols, N. (2016). Contemporary Tax Practice: Research,       Planning and Strategies (4th ed.). CCH Inc.

How did the TCJA change the AMT? (2020). Tax Policy Center. https://www.taxpolicycenter.org/briefing-book/how-did-tcja-change-amt-0