Tax Relief - Foreign Earned Income
A U.S. citizen is taxed on their global income in the USA. The same applies to resident aliens of the U.S. Global income means income earned in any part of the world. It can be income received from a U.S. or foreign company. However, there is tax relief available in respect to income earned abroad in some situations by the exclusion of foreign income. An exclusion applies to what is called foreign earned income.

The main condition for the exclusion is residence in a foreign country. You need to be a continuous legal resident of the foreign country for a period of one tax year. In the case of a U.S. resident alien, the bonafide residence for one tax year needs to be in a country with which the U.S. has an income tax treaty. Alternatively, your physical presence in the foreign country should be for at least 330 days during a period of one continuous year. In other words, for tax relief, your tax home needs to be in the foreign country.

Certain types of foreign earned income are not eligible for exclusion as they are not considered as being in this category. Examples of such income are:

• Pension payments and benefits from social security
• Payments made to its employees by the U.S. government
• Payments received in the succeeding tax year in respect to services performed during the preceding tax year

Those meeting the conditions of residence or physical presence are also entitled to tax relief in respect to foreign housing. There is no foreign tax credit available in respect to excluded income. This is so that such income does not suffer double tax because of its exclusion.

alternative minimum tax exclusion

Tax Relief
Tax relief is any deduction from taxes allowed to taxpayers by federal or state tax authorities for certain expense categories. An example is allowing the deduction of interest paid on educational loans from the income tax payable. Tax relief also takes the form of full or partial tax exemptions for low- and moderate-income families. In some cases, tax relief includes releasing citizens from paying taxes immediately, particularly during cases of natural disasters and similar contingencies. An example is tax relief granted to families following the devastation caused by hurricanes in the south during 2005.

Tax relief helps everyone, particularly the low-income families. It is normally provided as deductions from any of the various taxes like income tax, state tax, property tax, etc. In 1992, a tax-relief program introduced by the Internal Revenue Service was specifically targeted at helping individuals and corporations settle back taxes. This helped persons who were in financial hardship to pay back at least a part of the taxes that they owed. This process, which allows taxpayers settle the back taxes that they owe for less than the full amount, is known as an offer in compromise.

Normally, tax relief works through a process where tax authorities review the ability of a taxpayer to pay taxes based on information regarding the person’s income and assets. A tax relief is granted if it’s found that the recovery of a certain tax is unreasonable on the grounds that asset values have significantly decreased. However, tax authorities grant a tax relief only if the taxpayer’s request for relief is based on a valid reason as defined under law. Tax relief is also granted under special circumstances. In the case of taxes on inheritance and gifts, a relief can be granted if it’s ascertained that the value of the assets received has significantly reduced.

alternative minimum tax example

Tax Refund Estimator - Tax Return Estimator - How to Use it
Would you like to do a quick estimate of your taxes before tackling the real thing? By entering some basic information regarding your earnings, filing status, and deductions you can get a quick estimate of your Federal tax refund or amount you owe Uncle Sam.

The Turbotax online website has a tax return estimator that you can use for free. Use this handy planning tool to figure out how much of a tax refund you’ll get or how much you’ll owe.

How to use the tax estimator - Just enter this basic info

• You and your family This is where you enter your filing status. Single, married filing jointly, married filing separately, or head of household. Number of dependents are also entered here.
• Earnings and Income Money you earned from wages, self-employment and investments are entered into the tax refund estimator here.
• Deductions and personal expenses Enter your amounts into these pre-set categories: Medical expenses, real estate and personal property taxes, home mortgage interest and points, home equity loan interest, charitable contributions, alimony you paid, child care expenses, and other miscellaneous deductions.
• Withholding taxes Enter the amount of your Federal income tax withheld, and State income tax withheld.

After entering your information the tax estimator will give you a summary of your tax situation. This summary will give you a good idea of your tax refund amount or taxes you owe. After you’ve used the tax refund estimator you’ll also get a list of tax tips for your situation.

alternative minimum tax estimator

How To Estimate Your Irs Tax Refund In Advance, For Free
Wouldn’t it be nice to know how much your income tax refund check will be. It’s like having money in the bank. Yes, there is a simple way to estimate your tax refund in advance and it won’t cost you a dime.

I’m about to show you how you can estimate your Federal IRS income tax refund or return in advance, for free!

How to estimate your income tax refund

Forget about using pen, paper and a calculator, we’re going to estimate your taxes with the help of the Internet. Using an online tax refund estimator, we can get this done in about 10-15 minutes. The tax refund estimator will need to gather information about you, to make an estimate. All you have to do is make simple entries.

Here is how and what you’ll be asked:

Screen 1. Your filing status, age, your children and other dependents.

Screen 2. Earnings, gross wages and self employment income.

Screen 3. Any investment income such as interest, dividends and capital gains.

Screen 4. Any other income such as rental, royalty , partnerships, trusts, tax refunds, alimony, unemployment, social security and any other income.

Screen 5. Ira and education expenses such as Ira contributions, student loan interest, college tuition and expenses.

Screen 6. Expenses, business and work related, self employed health insurance, moving, Keogh and other.

Screen 7. Deductions and personal expenses such as medical, real estate, mortgage interest, home equity loan, charitable contributions, alimony you paid, child care, gambling losses, theft and other.

Screen 8. Miscellaneous tax items. These tax items apply to relatively few people. AMT and other misc.

Screen 9. Withholding, Federal income tax withheld, State income tax withheld and future withholding if before end of tax year.

Screen 10. Tax payments you have made or will make for this year.

And now what you’ve been waiting for.

The Results! That’s it, you’ll know how much your tax refund will be, so you can make important financial decisions.

alternative minimum tax estimate

Calculating Depreciation For Your Investments
Investing in real estate? Thinking about buying new equipment for your business? The depreciation you take on your tax return can turn into a significant tax benefit. But you need to make some complex calculations. Fortunately, Microsoft Excel can help.

Excel’s VDB function calculates declining balance depreciation for an asset given the cost, its salvage value, estimated economic life, the starting accounting period and the ending accounting period for which depreciation is being calculated, the factor at which the balance declines, and, optionally, a switch-to-straight-line switch which is set to either TRUE or FALSE. If you set this switch to TRUE, Excel doesn’t switch to straight-line at the point when straight-line depreciation exceeds declining balance depreciation. If you set this value to FALSE, Excel does switch to straight-line. If you don’t set the optional switch-to-straight-line switch to TRUE, Excel sets this value to FALSE.

Note: By default, US tax laws do convert to straightline depreciation at the point that straightline depreciation exceeds declining balance deprecation. But back to the mechanics of the VBD function…

The VDB function uses the following syntax:

VBD(cost,salvage,life,start-period,end-period,factor,switch)

Suppose, for example, that you must calculate 150% declining balance depreciation for equipment that costs $50,000, lasts five years, and will have a salvage value of $10,000 at the end of the fifth year. To calculate the depreciation for the first year, you use the following formula:

=VBD(50000,10000,5,0,1,150%)

The function returns the value 15000.00. Notice that to calculate depreciation for the first year, you set the start period to 0 and the end period to 1. To calculate the depreciation for the second year, you use the formula

=VBD(50000,10000,5,1,2,150%)

The function returns the value 10500.00. Notice that to calculate the depreciation for the second year, you set the start period to 1 and the end period to 2. In both of the two preceding examples, Excel will automatically switch to straight-line depreciation at the point when straight-line depreciation for a period exceeds declining balance depreciation. To instruct Excel not to make this switch, you would use the following formula to calculate depreciation for the first year:

-VBD(50000,10000,5,0,1,150%,TRUE)

The word TRUE, which Excel interprets as 1, tells Excel not to switch to straight-line. To instruct Excel not to make this switch in the second year, you would use the following formula to calculate depreciation:

=VBD(50000,10000,5,1,2,150%,TRUE)

alternative minimum tax depreciation

Democratic Budget - PAYGO EQUALS PAYMORE!!
The Democrats promised to balance the budget by 2012. They said they will do this by finding “$900 billion in additional revenues.”

Translation-TAX INCREASES!!

They would let the recent tax cuts expire in 2010. This means among other things bringing back the marriage penalty tax and cutting the child tax credit in half.

Democrats want you to believe that they intend to slow the growth in spending. They are using their usual deception with the term PAYGO. No matter how glib their wording, the reality is that PAYGO will become PAYMORE.

Little would be done to curb welfare and other entitlements which are soaring. The average family would see a tax increase of $2641 per year.

A family of four earning $50,000 would see taxes go up 132 percent. A single parent with two children earning $30,000 would see taxes raised 67 percent, according to Senate Minority Leader Mitch McConnell, if the president’s tax relief is not made permanent.

Some Democrats blame it on the war. Total defense spending takes 4% of GDP. Defense spending as a percent of GDP is a tick away from its lowest point in 50 years.

Democrats are simply being Democrats. They’re trying to get their hands on every penny they can to redistribute, mostly to non-producers.

To implement PAYGO, tax cuts must be offset by tax increases elsewhere or with cuts in entitlement spending, which would be helpful if those cuts applied to all entitlements.

Instead, Democrats stayed away from entitlements already in place, which have huge future costs.

Since the 2001-2003 tax cuts, revenues have soared and continue to do so. With revenues pouring in to the Treasury, no legitimate argument can be made for tax increases.

How about the economy? March 2007 produced another sizable jump in new jobs as did worker gains. When workers gain as they have for the last two years, the job market usually remains tight, signaling more good news ahead.

PAYGO may sound good, but it has the potential for much harm.

Hopefully Americans will tell congress to put a healthy economy and job creation ahead of partisan politics.

alternative minimum tax democrats

The Alternative Minimum Tax, What Can Be Done?
I know you must be frustrated with this alternative minimum tax but do you really know what it is all about? Chances are you don’t fully understand. I will attempt to explain the alternative minimum tax to you and offer some tax planning strategies to help you endure.

The alternative minimum tax (AMT) is a tax calculation that is run simultaneously with the regular income tax calculation. The AMT is was originally designed to keep taxpayers from taking too much advantage of income tax deductions and potentially limiting the amount of income tax to be paid. If a taxpayer had certain deductions or exercised incentive stock options without selling the stock, there would quite likely be exposure to the AMT. The funny thing is, these days a taxpayer doesn’t have to have a bunch of deductions or a complicated tax structure to all into the AMT. In fact, many who are in the AMT are married filing joint returns with just the normal course of itemized deductions. When the married filing joint tax tables were adjusted to reflect twice the single tax rates(an attempt to eliminate the marriage penalty), more of these tax returns were in the AMT as a result of phasing out the lower income tax brackets. The lower income tax brackets of 10% and 15% were phased out by applying the AMT rate of 26% form most taxpayers. Throw in the fact that taxes taken as itemized deductions and miscellaneous deductions subject to the 2% adjusted gross income floor are add backs to arrive at alternative minimum taxable income, its no wonder that more Americans found themselves in this predicament.

The best way for the average American to avoid, or lesson the effects of the AMT is to reduce income. Increasing contributions to 401K’s is an excellent way to do this. This serves to reduce both regular tax and AMT. In fact, I have run scenarios that have gotten the taxpayers out of the AMT by reducing income through use of a 401K. Another helpful task is to reduce state income taxes withheld. This is an addition to arrive at AMT taxable income. If one is making estimated tax payments, don’t make the fourth quarter estimate in December, wait and make it in January. This will reduce exposure during the current year and will make it possible for a deduction in the following year. The same principal applies for those having state taxes withheld from their pay. Reduce withholding to the bear minimum. If one typically gets refunds on the state return, claim more exemptions to lesson the tax withheld. In fact, it might make sense to reduce withholding down to an amount that would have an amount due on the return. This amount due would be paid in the following year and can be calculated to avoid penalty and interest for the current year’s return. My favorite tactic for reducing exposure to regular tax and the AMT is getting reimbursed for un-reimbursed expenses. If one is an outside salesman, then there is definite chance that these expenses are helping to bring on the AMT. Here’s how this can work. In lieu of getting a bonus or commission check, have the employer reimburse for the expenses instead. This will provide income that is not subject o tax. The income will not be placed on the W-2 form and will therefore lower exposure to regular tax and the AMT.

These are a few of the ways to help cope with what I call operational AMT. Operational AMT does not require the use of amazing tax attributes and finds its way to the taxpayer by virtue of where the tax bracket falls and the type of normal deductions taken. Situational AMT involves specific transactions like exercising ISO’s or the sale of Internal Revenue Code 1202 stock. Situational AMT will often provide a credit that can be carried forward to offset regular tax in a future year, subject to limitations. I will discuss this more in a later article. For the time being, it is important to know how one’s income will fall over the next few years in order to plan for operational AMT. Calculate your own exposure to AMT by filling out form 6251 for the current year as well as the next three or four years. If you need help, you know where to find me.

alternative minimum tax definition

Many Taxpayers Overlook AMT
Many taxpayers don’t ever consider checking to see if they fall into the AMT. In fact, many don’t even know what it is.

Those that attempt to figure it out, often get confused by the calculations and simply assume that they don’t owe it.

“Many taxpayers are unaware that the AMT applies to them until they receive a notice from the IRS, and some discover they have AMT liabilities that they did not anticipate and cannt pay,” said Taxpayer Advocate Nina Olson in a report to a congressional subcommittee last year.

While the instructions for Form 1040’s line 45 (where you enter your AMT amount) require taxpayers to fill out fairly simple worksheet, the taxpayer ahs to read 16 exceptions to that worksheet that refer the taxpayer to go directly to Form 6251to figure potential AMT liability.

Many don’t know where to even go for the form, as they simply picked up a 1040 and started filling it out as usual.

One of the exceptions is “interest paid on a mortgage not used to buy, build or substantially improve your home.” Does this mean that home equity loan that consolidated the credit cards?

“There’s no one thing that one can say for sure ‘this is going to be an AMT problem,” said Mark Luscombe, a principal analyst with CCH.

Many are shocked to find that they are in the AMT. After all, it was originally intended to stop the wealthy from avoiding their income taxes.

“You don’t have to be making a lot of money to fall into the alt-min anymore,” said Barbara Steinmetz, a certified financial planner. “Property taxes help boost you there. State income taxes help boost you there.”

“If you are working through the 1040 and you go line by line, you shouldn’t miss it,” says the IRS.

The AMT currently traps high-income taxpayers with difficult tax situations. Most of these are aware of the issue, because they have their tax returns prepared professionally.

Without yearly patches on the AMT, millions of middle-income families could be subject to the parallel tax.

“It’s like watching a horror movie and there’s this slow moving creature that’s about to consume the middle class,” said Len Burman of the Urban Institute and the Tax Policy Center.

alternative minimum tax defined

Tax Deductible Items - How to Find & Use More
You probably already know that finding and using more tax deductible items can lower your tax bill. But how do you find and use these valuable tax deductions? Easy… You can go to Turbotax online and use their tax deduction maximizer to find more tax deductible items that are available to you.

There are over 350 tax deductible items the maximizer will search and show you how to qualify for.

This is how the deduction maximizer works

• Shows you how to qualify Each tax deduction has certain requirements to qualify. You are shown how to qualify for each deduction.
• Looks for deduction opportunities As you enter your information, tax deductible items are being searched to see which ones you may qualify for.
• Miscellaneous tax deductions Once you’ve entered your information as prompted, the deduction maximizer will alert you to any of the over 350 other miscellaneous tax deductible items you may qualify for.
• If you own a home Instead of taking the standard deduction, let the deduction maximizer check to see if you could save money by itemizing. If the interest you paid on your mortgage is more than the standard deduction, you would be better off itemizing.
• Should you Itemize? Whether you own a home or not, itemizing can still save you lots of money. Let the maximizer determine which saves you the most money. Itemizing or standard.

If you want a fast way to find more tax deductions, try using the deduction maximizer. Turbotax lets you use their online tax software for free, for as long as you like. There’s no charge unless you decide to file your taxes through them.

alternative minimum tax deductions

Federal Income Tax Deduction - Give Me The Basics
Federal income tax deduction, you’ve heard the term before, but what is it exactly? Well, what a federal income tax deduction is a statutory requirement of the United States law. Every single United States citizen must pay it, as long as they fall in a tax bracket, which is determined by the United States government. The way income tax reduction is calculated is by removing excluded income, exemptions and permissible deductions from gross income.

There are a few exemptions from having to pay the tax deduction. These include any money from life insurance earned, any money from gifts or inheritances, money from any personal injury settlements, and any interest earned on state or municipal bonds. There are some considerations when trying to take advantage of any of these exemptions in regards to the income tax deduction, so it is best if you have a tax preparer help you in these instances.

There are few other reasons you may have additional deductions beyond the federal tax deduction. In fact the tax deduction is considered the standard deduction. The following are called ‘above-the-line’ deductions. These include, trade and business expenses, alimony, IRA contributions, net capital losses and any money used on property that is used to generate an income. Someone who has a reduction may or may not be able to take advantage of these other deductions, but you should have a tax preparer help you with these if at all possible.

Those who earn over a certain amount and have a federal income tax deduction has something called an alternative minimum tax they can take advantage of. Because of having an income that exceeds a certain amount the person may have to pay more on their tax rebate then would allow for them to be able to take advantage of other deductions and credits. Therefore they have the option of claiming an alternative minimum tax instead.

There is one last option for almost anyone; to paying the federal tax deduction straight out and this itemized deduction. This can include state and local income and taxes, donations to charity, employee transfer costs, medical expenses, casualties and any loss that may have been incurred from this and any interest paid on mortgages. Itemized deduction can be a bit more of a hassle than it’s worth though, depending on how many of these you qualify for, so check with your tax preparer ahead of time.

In the end is up to you whether or not you will go with just the standard deduction or with a more detailed one such as itemizing. But either way, at least now you hopefully will have a better understanding of some of things involved with a federal income tax reduction.

alternative minimum tax deduction