Federal Income Tax

<div class="Section1"><em>Editor&rsquo;s Note:</em> The 2017 tax reform legislation roughly doubled the standard deduction to $24,000 per married couple ($29,200 for 2024) and $12,000 per individual ($14,600 for 2024). For heads of households, the standard deduction was increased to $18,000 ($21,900 for 2024). For married taxpayers filing separate returns, the standard deduction was $12,000 ($14,600 for 2024). These amounts are indexed for inflation for tax years beginning after December 31, 2018 and are set to expire for tax years beginning after December 31, 2025.<a href="#_ftn1" name="_ftnref1">¹</a><div class="Section1"><br /> <br /> The standard deduction is one of two &ldquo;below-the-line&rdquo; deduction options available to taxpayers. In other words, once a taxpayer determines adjusted gross income (gross income minus above the line deductions), the taxpayer may also deduct the sum of their exemptions and the greater of 1) the standard deduction; or 2) the sum of their itemized deductions (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8524">8524</a>).<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> <hr><br /> <br /> <strong>Planning Point:</strong> Because of the increased standard deduction and the elimination of many itemized deductions, more taxpayers now choose the standard deduction under the 2017 tax reform law. Those taxpayers who wish to take advantage of the remaining itemized deductions (for example, the deduction for charitable contributions) can benefit from planning to &ldquo;bunch&rdquo; those deductions into a single tax year in order to ensure that itemized deductions exceed the expanded standard deduction.<br /> <br /> <hr><br /> <br /> Taxpayers who do not itemize and who are age 65 or older or blind are entitled to increase their standard deduction. In 2024, taxpayers who are married or are surviving spouses are each entitled to an additional deduction of $1,550 if age 65 or older, as well as an additional $1,500 deduction if blind. The additional standard deduction is $1,550 for 2024 for blind taxpayers or those age 65 or older. The additional standard deduction amount is increased in 2024 to $1,950 if the individual is also unmarried and not a surviving spouse.<a href="#_ftn3" name="_ftnref3">³</a> The additional amounts for elderly and blind taxpayers are indexed for inflation.<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">[1]</a>. IRC &sect; 63(c)(7), Rev. Proc. 2023-34.<br /> <br /> <a href="#_ftnref2" name="_ftn2">[2]</a>. IRC &sect; 63.<br /> <br /> <a href="#_ftnref3" name="_ftn3">[3]</a>. IRC &sect; 63(f); Rev. Proc. 2023-34.<br /> <br /> <a href="#_ftnref4" name="_ftn4">[4]</a>. IRC &sect; 63(c)(4).<br /> <br /> </div></div><br />

<div class="Section1">If a child is subject to the kiddie tax (see Q 8601), it is possible that he or she may be subject to AMT. Under special rules, the AMT exemption of a child subject to the kiddie tax in 2024 is the lesser of the AMT exemption for a single taxpayer ($85,700) or the total of the child&rsquo;s earned income plus $9,250.<a href="#_ftn1" name="_ftnref1">¹</a><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">[1]</a>. IRC &sect; 59(j); Pub. Law No. 115-97, Rev. Proc. 2023-34.<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> <em>Editor&rsquo;s Note:</em> The 2017 tax reform legislation changed the treatment of unearned income of minors by applying the tax rates that apply to trusts and estates to this income. Beginning in 2020, those rules were permanently repealed.<br /> <br /> As a general rule, the income is taxable to the minor. However, as discussed in Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8601">8601</a>, unearned income of children (even potentially up to age 23), may be subject to the kiddie tax.<br /> <br /> To the extent that income from the transferred property is used for the minor&rsquo;s support, it may be taxed to the person who is legally obligated to support the minor.<a href="#_ftn1" name="_ftnref1">¹</a> State laws differ as to a parent&rsquo;s obligation to support. The income will be taxable to the parent only to the extent that it is actually used to discharge or satisfy the parent&rsquo;s obligation under state law.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">[1]</a>. Rev. Rul. 56-484, 1956 CB 23; Rev. Rul. 59-357, 1959 CB 212.<br /> <br /> <a href="#_ftnref2" name="_ftn2">[2]</a>. IRC &sect; 677(b).<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> <em>Editor&rsquo;s Note:</em> The 2017 tax reform legislation temporarily increased the AMT exemption amount for tax years beginning after December 31, 2017 and before December 31, 2026.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> In addition to regular income tax, the alternative minimum tax (AMT) is an additional tax that certain taxpayers must pay. In theory, the purpose of AMT is to prevent high income taxpayers from taking advantage of tax benefits (such as exclusions, deductions and credits) to substantially reduce or even eliminate their tax liability. However, in reality, due to complex rules, many relatively low income taxpayers may become subject to AMT.<br /> <br /> The AMT is calculated as follows:<br /> <p style="padding-left: 40px">(1) compute alternative minimum taxable income (AMTI, see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8576">8576</a>);</p><br /> <p style="padding-left: 40px">(2) subtract the exemption amount from AMTI; and</p><br /> <p style="padding-left: 40px">(3) multiply the remaining AMTI (step (2), above), by the applicable AMT rate.</p><br /> For purposes of sheltering lower income taxpayers from being subject to AMT, the Code exempts certain amounts of income. Only AMTI in excess of the exemption amount is subject to AMT. The 2024 exemption amounts are as follows:<a href="#_ftn2" name="_ftnref2">²</a><br /> <table align="center"><br /> <tbody><br /> <tr><br /> <td width="305">Filing Status</td><br /> <td width="235">AMT Exemption</td><br /> </tr><br /> <tr><br /> <td width="305">Married filing jointly or qualifying widow(er)</td><br /> <td width="235">$133,300</td><br /> </tr><br /> <tr><br /> <td width="305">Married filing separately</td><br /> <td width="235">$66,650</td><br /> </tr><br /> <tr><br /> <td width="305">Single or Head of Household</td><br /> <td width="235">$85,700</td><br /> </tr><br /> <tr><br /> <td width="305">Estates and Trusts</td><br /> <td width="235">$29,900</td><br /> </tr><br /> </tbody><br /> </table><br /> A 28 percent AMT rate applies to excess taxable income. In 2024, the 28 percent rate applies to excess taxable income above $116,300 for married taxpayers filing separately and $232,600 for joint returns, individual returns and estates and trusts. In 2023, the 28 percent rate applied to excess taxable income above $110,350 for married taxpayers filing separately and $220,700 for joint returns, individual returns and estates and trusts. In 2022, the amounts were $103,050 for married taxpayers filing separately and $206,100 for joint returns, individual returns and estates and trusts.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> For purposes of computing AMT, the taxpayer is allowed to take the foreign tax credit and certain other credits (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8573">8573</a>).<a href="#_ftn4" name="_ftnref4">⁴</a> After computing AMT, the AMT amount is compared with the taxpayer&rsquo;s regular income tax liability. If the regular tax is lower than AMT, the difference is AMT that is owing in addition to the tax. Stated differently, the taxpayer must pay the higher of the AMT or the regular tax.<a href="#_ftn5" name="_ftnref5">⁵</a><br /> <p style="padding-left: 40px"><em>Example:</em> For 2022, Asher&rsquo;s regular income tax liability is $75,000 but his AMT tax liability is $95,000, or $20,000 more than his regular income tax liability. Asher&rsquo;s liability is $95,000 ($75,000 regular income tax and $20,000 AMT).</p><br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">[1]</a>. IRC &sect; 55(d)(4)<br /> <br /> <a href="#_ftnref2" name="_ftn2">[2]</a>. IRC &sect; 55(d)(1), Pub. Law No. 115-97.<br /> <br /> <a href="#_ftnref3" name="_ftn3">[3]</a>.Rev. Proc. 2023-34, Rev. Proc. 2022-38.<br /> <br /> <a href="#_ftnref4" name="_ftn4">[4]</a>. IRC &sect; 55(b)(1)(A), Pub. Law No. 115-97.<br /> <br /> <a href="#_ftnref5" name="_ftn5">[5]</a>. IRC &sect; 55(a).<br /> <br /> </div></div><br />

<div class="Section1">Alternative minimum taxable income (AMTI) is taxable income, with adjustments made in the way certain items are treated for AMT purposes, increased by tax preference items.<a href="#_ftn1" name="_ftnref1">¹</a><div class="Section1"><br /> <br /> Except as otherwise provided below and in Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8577">8577</a> and Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8578">8578</a>, the provisions that apply in determining the regular taxable income of a taxpayer also generally apply in determining the AMTI of the taxpayer.<a href="#_ftn2" name="_ftnref2">²</a> In addition, references to a non-corporate taxpayer&rsquo;s adjusted gross income (AGI) or modified AGI in determining the amount of items of income, exclusion, or deduction must be treated as references to the taxpayer&rsquo;s AGI or modified AGI as determined for regular tax purposes.<a href="#_ftn3" name="_ftnref3">³</a>The following chart is a non-exclusive comparison of the different treatment of certain items in the computation of regular income tax as compared to the computation of AMT:<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <table align="center"><br /> <thead><br /> <tr><br /> <td width="180"><strong>Item</strong></td><br /> <td width="180"><strong>Regular Income Tax Computation</strong></td><br /> <td width="180"><strong>AMT Computation</strong></td><br /> </tr><br /> </thead><br /> <tbody><br /> <tr><br /> <td width="180">Standard deduction (taxpayer does not itemize)</td><br /> <td width="180">Allowed</td><br /> <td width="180">Not allowed</td><br /> </tr><br /> <tr><br /> <td width="180">Phase out of itemized deductions (N/A for 2018025)</td><br /> <td width="180">Phased out if AGI exceeds applicable thresholds</td><br /> <td width="180">No phase out</td><br /> </tr><br /> <tr><br /> <td width="180">Medical Expenses</td><br /> <td width="180">Allowed as itemized deductions to the extent they exceed 7.5% of AGI</td><br /> <td width="180">Same</td><br /> </tr><br /> <tr><br /> <td width="180">Taxes</td><br /> <td width="180">State income taxes, property taxes, etc. allowed as itemized deductions (subject to $10,000 cap in 2018025)</td><br /> <td width="180">Not allowed</td><br /> </tr><br /> <tr><br /> <td width="180">Home Mortgage Interest</td><br /> <td width="180">Allowed (subject to limitations)</td><br /> <td width="180">Allows only acquisition indebtedness including loans taken to improve principal residence or second home. Interest attributed to refinanced amounts in excess of original loan not allowed.</td><br /> </tr><br /> <tr><br /> <td width="180">State Tax Refund</td><br /> <td width="180">Included in gross income if previously deducted as itemized deduction</td><br /> <td width="180">Since state taxes are not allowed as a deduction, refunds are not included in income. Amount of regular income entered as a negative amount.</td><br /> </tr><br /> <tr><br /> <td width="180">Interest expense related to tax-exempt interest income</td><br /> <td width="180">Not allowed</td><br /> <td width="180">Allowed if interest expense is related to tax-exempt private activity bonds</td><br /> </tr><br /> <tr><br /> <td width="180">Miscellaneous itemized deductions (N/A for 2018025)</td><br /> <td width="180">Allowed to the extent they exceed 2% of AGI assuming the taxpayer itemizes</td><br /> <td width="180">Not allowed</td><br /> </tr><br /> <tr><br /> <td width="180">Qualified stock options</td><br /> <td width="180">Exercise of a qualified stock option not taxable</td><br /> <td width="180">Difference between amount paid to acquire the stock and the FMV of the stock is included as AMTI income</td><br /> </tr><br /> <tr><br /> <td width="180">Tax-exempt income</td><br /> <td width="180">Not included in gross income</td><br /> <td width="180">Included in AMTI income</td><br /> </tr><br /> </tbody><br /> </table><br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">[1]</a>. IRC &sect; 55(b)(2).<br /> <br /> <a href="#_ftnref2" name="_ftn2">[2]</a>. Treas. Reg. &sect; 1.55-1(a).<br /> <br /> <a href="#_ftnref3" name="_ftn3">[3]</a>. Treas. Reg. &sect; 1.55-1(b).<br /> <br /> <a href="#_ftnref4" name="_ftn4">[4]</a>. IRC &sect;&sect; 56, 58.<br /> <br /> </div></div><br />

<div class="Section1"><em>Editor&rsquo;s Note:</em> The 2017 tax reform legislation temporarily increased the AMT exemption amount for tax years beginning after December 31, 2017 and before December 31, 2025. For 2024, the amount increased to $133,300 for married taxpayers filing joint returns (half this amount for separate returns, $66,650) and $85,700 for all other taxpayers. For 2023, the amount was $126,500 for married taxpayers filing joint returns (half this amount for separate returns, $63,250) and $81,300 for all other taxpayers. The AMT exemption amount for trusts and estates increases to $29,900 for 2024 (up from $28,400 for 2023).<a href="#_ftn1" name="_ftnref1">¹</a><div class="Section1"><br /> <br /> The purpose of the AMT exemption is to prevent its imposition on lower income taxpayers. However, the AMT exemption does phase out when AMTI reaches certain threshold levels.<a href="#_ftn2" name="_ftnref2">²</a> The phase out is a reduction of the exemption by 25 percent of each dollar over the applicable threshold. The following chart sets forth the applicable 2024 AMTI thresholds as well as the total phase out amount, which were also increased by the 2017 tax reform legislation.<a href="#_ftn3" name="_ftnref3">³</a><br /> <table width="100%"><br /> <tbody><br /> <tr><br /> <td width="50%"><strong>Filing Status</strong></td><br /> <td width="50%"><strong>AMTI Exemption Phase Out Threshold Amount</strong></td><br /> </tr><br /> <tr><br /> <td width="50%">Married filing jointly</td><br /> <td style="text-align: center" width="50%">$1,218,700</td><br /> </tr><br /> <tr><br /> <td width="50%">All other taxpayers (other than trusts and estates)</td><br /> <td style="text-align: center" width="50%">$609,350</td><br /> </tr><br /> <tr><br /> <td width="50%">Trusts and Estates</td><br /> <td style="text-align: center" width="50%">$99,700<a href="#_ftn5" name="_ftnref5"></a></td><br /> </tr><br /> </tbody><br /> </table><br /> <p style="padding-left: 40px"><em>Example: </em>In 2024 (projected), Asher and Ashley, a married couple, have AMTI of $1,300,000. Their AMT exemption without considering the phase out is $133,300. However, the couple&rsquo;s AMTI is $1,300,000 and the AMTI exemption phase out threshold amount is $1,218,700. As a result, their AMT exceeds the threshold amount by $81,300. Applying the phase out, the couple&rsquo;s 2023 exemption amount is reduced from $133,300 to $20,325 (a reduction of $112,975, or 25% * $81,300).</p><br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">[1]</a>.IRC &sect; 55(d)(4); Rev. Proc. 2022-38, Rev. Proc. 2023-34.<br /> <br /> <a href="#_ftnref2" name="_ftn2">[2]</a>. IRC &sect; 55(d)(3).<br /> <br /> <a href="#_ftnref3" name="_ftn3">[3]</a>.Rev. Proc. 2023-34.<br /> <br /> <br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> <em>Editor&rsquo;s Note:</em> Under the SECURE Act, the changes made by the 2017 tax reform legislation with respect to the kiddie tax rules were repealed. The repeal of the 2017 kiddie tax changes was effective beginning in 2020. However, taxpayers had the option of electing to apply either set of rules retroactively, in 2018 and 2019.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> The so-called &ldquo;kiddie tax&rdquo; is designed to prevent parents from shifting unearned income that would otherwise be taxed at their higher rates to their children to be taxed at lower rates. To prevent this type of income shifting, the kiddie tax subjected a child&rsquo;s unearned income in excess of certain threshold levels (see below) to taxation at the parents&rsquo; highest marginal tax rate.<br /> <br /> The 2017 tax reform legislation aimed to simplify the treatment of unearned income of minors by applying the tax rates that apply to trusts and estates to this income. Therefore, under the tax reform rule, earned income of minors was to be taxed according to the individual income tax rates prescribed for single filers,<a href="#_ftn2" name="_ftnref2">²</a> and unearned income of minors was to be taxed according to the applicable tax bracket that would apply if the income was that of a trust or estate (for both income that would be subject to ordinary income tax rates and income that would receive capital gains treatment).<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> Under pre-reform law, which is once again applicable (see Editor&rsquo;s Note, above), for the kiddie tax to apply, at least one parent must be alive at the close of the taxable year. The parent whose taxable income was taken into account is (a) in the case of parents who are not married, the custodial parent of the child (determined by using the support test for the dependency exemption, see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8520">8520</a>) and (b) in the case of married individuals filing separately, the individual with the greater taxable income.<a href="#_ftn4" name="_ftnref4">⁴</a> If the custodial parent files a joint return with a spouse who was not a parent of the child, the total joint income is applicable in determining the child&rsquo;s rate. If there was an adjustment to the parent&rsquo;s tax, the child&rsquo;s resulting liability also must be recomputed. In the event of an underpayment, interest, but not penalties, are assessed against the child.<a href="#_ftn5" name="_ftnref5">⁵</a><br /> <br /> The kiddie tax applies only to &ldquo;net unearned income.&rdquo; &ldquo;Net unearned income&rdquo; is defined as adjusted gross income that is not attributable to earned income, and that exceeds (in 2024) (1) the $1,300 standard deduction for a dependent child plus (2) the greater of $1,300 or earned income plus $450.<a href="#_ftn6" name="_ftnref6">⁶</a> The source of the assets that produce unearned income need not be the child&rsquo;s parents.<a href="#_ftn7" name="_ftnref7">⁷</a><br /> <br /> &ldquo;Earned income&rdquo; means all compensation for personal services actually rendered.<a href="#_ftn8" name="_ftnref8">⁸</a> A child is therefore taxed at his own rate on reasonable compensation for services that he or she performs.<br /> <br /> Regulations specify that &ldquo;unearned income&rdquo; includes any Social Security or pension payments received by the child, income resulting from a gift under the Uniform Gifts to Minors Act, and interest on both earned and unearned income.<a href="#_ftn9" name="_ftnref9">⁹</a><br /> <br /> The kiddie tax applies to:<br /> <p style="padding-left: 40px">(1) a child under age 18; or</p><br /> <p style="padding-left: 40px">(2) a child age who has reached age 18, but whose earned income does not exceed one-half of his or her support; or</p><br /> <p style="padding-left: 40px">(3) a child aged 19 to 23 who is a full-time student with earned income that does not exceed one-half of his or her support.<a href="#_ftn10" name="_ftnref10">¹⁰</a></p><br /> Whether a child&rsquo;s age is below the threshold ages listed above is determined at the end of the tax year. &ldquo;Child,&rdquo; for purposes of the kiddie tax, includes children who are adopted, related by half-blood, or from a prior marriage of either spouse.<a href="#_ftn11" name="_ftnref11">¹¹</a> The kiddie tax applies without regard to whether the child is considered a dependent for tax purposes.<br /> <p style="padding-left: 40px"><em>Example:</em> In 2023, Pete is 16 and both of his parents are alive. During 2022, Pete has $1,400 of interest income from a bank savings account and $1,700 of income that he earned from a paper route. Some of the interest income is attributable to Pete&rsquo;s paper route earnings that were deposited in the account. The balance of the interest was generated from cash gifts Pete received from his parents and grandparents. Pete has no itemized deductions and can be claimed as a dependent on his parent&rsquo;s return.</p><br /> <p style="padding-left: 40px">Therefore, for the taxable year 2023, Pete&rsquo;s standard deduction is $2,100, the amount of Pete&rsquo;s earned income, $1,700 from the paper route, plus $400. Of this standard deduction amount, $850 is allocated against unearned income, and $1,250 is allocated against earned income.</p><br /> <p style="padding-left: 40px">Although some of Pete&rsquo;s $1,400 of interest income is attributable to some of his paper route income deposited into his bank account, it is all treated as unearned income. Of that amount, $1,000 is taxed at Pete&rsquo;s own tax rate (10 percent). The remaining taxable unearned income of $400 will be taxed at his parents&rsquo; highest marginal tax rate.</p><br /> <p style="padding-left: 40px">Under the optional rules applicable from 2018019, the unearned income would have been taxed at 10 percent (the trust and estate tax rate), and the earned income would have been taxed as though Pete were any other single filer.</p><br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">[1]</a>. SECURE Act &sect; 501(c).<br /> <br /> <a href="#_ftnref2" name="_ftn2">[2]</a>. IRC &sect; 1(j)(4)(B).<br /> <br /> <a href="#_ftnref3" name="_ftn3">[3]</a>. IRC &sect; 1(j)(4).<br /> <br /> <a href="#_ftnref4" name="_ftn4">[4]</a>. Temp. Treas. Reg. &sect; 1.1(i)-1T, A-11, A-12.<br /> <br /> <a href="#_ftnref5" name="_ftn5">[5]</a>. Temp. Treas. Reg. &sect; 1.1(i)-1T, A-17, A-19.<br /> <br /> <a href="#_ftnref6" name="_ftn6">[6]</a>. IRC &sect; 1(g)(4).<br /> <br /> <a href="#_ftnref7" name="_ftn7">[7]</a>. Temp. Treas. Reg. &sect; 1.1(i)-1T, A-8.<br /> <br /> <a href="#_ftnref8" name="_ftn8">[8]</a>. IRC &sect;&sect; 911(d)(2), 1(g)(4)(A)(i).<br /> <br /> <a href="#_ftnref9" name="_ftn9">[9]</a>. Temp. Treas. Reg. &sect; 1.1(i)-1T, A-8, A-9, A-15.<br /> <br /> <a href="#_ftnref10" name="_ftn10">[10]</a>. IRC &sect; 1(g)(2).<br /> <br /> <a href="#_ftnref11" name="_ftn11">[11]</a>. Temp. Treas. Reg. &sect; 1.1(i)-1T, A-13, A-14.<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> Taxpayers with annual income that equals or exceeds certain threshold amounts are required to file a federal income tax return for the year. The threshold amounts are indexed annually for inflation. The 2017 tax reform legislation modified the rules governing who is required to file a tax return for tax years beginning in 2018 through 2025. Because of the suspension of the personal exemption, unmarried individuals whose gross income exceeds the applicable standard deduction are now required to file a tax return for the year.<br /> <br /> Married individuals are required to file a tax return if the individual&rsquo;s gross income, when combined with his or her spouse&rsquo;s gross income, is more than the standard deduction that applies to a joint return and (1) the individual and his or her spouse, at the close of the tax year, shared the same household, (2) the individual&rsquo;s spouse does not file a separate return and (3) neither the individual nor his or her spouse is a dependent of another taxpayer who has income (other than earned income) in excess of $500.<br /> <br /> A return must be filed by every individual whose gross income equals or exceeds the following limits in 2024:<a name="_ftnref1"></a><a href="https://search.taxfactsonline.com/faqs_page/federal-income-tax-for-individuals-and-small-businesses/pugpig_index.html#_ftn1">¹</a><br /> <p style="padding-left: 40px">(1)&nbsp;&nbsp;&nbsp; Married persons filing jointly &ndash; $29,200 (if one spouse is 65 or older &ndash; $30,750; if both spouses are 65 or older &ndash; $32,300).</p><br /> <p style="padding-left: 40px">(2)&nbsp;&nbsp;&nbsp; Surviving spouse &ndash; $29,200 (if 65 or older &ndash; $30,750).</p><br /> <p style="padding-left: 40px">(3)&nbsp;&nbsp;&nbsp; Head-of-household &ndash; $21,900 (if 65 or older &ndash; $23,450).</p><br /> <p style="padding-left: 40px">(4)&nbsp;&nbsp;&nbsp; Single persons &ndash; $14,600 (if 65 or older &ndash; $16,150).</p><br /> <p style="padding-left: 40px">(5)&nbsp;&nbsp;&nbsp; Married persons filing separately &ndash; $14,600 (if 65 or older &ndash; $16,150).</p><br /> <p style="padding-left: 40px">(6)&nbsp;&nbsp;&nbsp; Dependents &ndash; an individual who may be claimed as a dependent of another must file a return for 2024 if he has unearned income in excess of (1) $1,300 or (2) the sum of $450 and the individual&rsquo;s earned income.</p><br /> Taxpayers claiming the additional deduction for blindness may need to attach additional documents to a tax return to verify entitlement to the additional standard deduction. Certain parents whose children are required to file a return may be permitted to include the child&rsquo;s income over $1,300 (2024) on their own return, thus avoiding the necessity of the child filing a return (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8602">8602</a>). The 2017 tax reform legislation provided new rules with respect to the unearned income of minors, which were repealed for tax years beginning in 2020. Absent the repeal, that income would have been taxed at the rates applicable to trusts and estates, while the earned income of minors would have been taxed at the ordinary income tax rates applicable to single filers. For the 2018 and 2019 tax years, taxpayers had the option of electing either set of rules.<br /> <br /> A taxpayer with self-employment income must file a return if net self-employment income is $400 or more.<br /> <br /> An individual who was subject to wage withholding but did not have gross income in excess of the threshold amounts described above may desire to file a return in order to receive a refund of the withheld taxes. Similarly, an individual not required to file a return may desire to file a return in order to receive a refund resulting from a refundable credit (a tax credit or refund payable to the taxpayer even if he or she had paid no tax), such as the earned income credit.<br /> <br /> When filing a claim for refund, taxpayers should consider the mailbox rule, which takes the date of mailing into consideration rather than the date the IRS receives the return. A district court recently confirmed that the &ldquo;mailbox rule&rdquo; applies to govern the date a return claiming a refund is filed with the IRS. Claims for refunds can generally be made within the immediate three years preceding the date the claim is filed plus extensions. The ruling, which noted that the IRS has previously agreed to follow the mailbox rule in these situations, means that if an otherwise late return is also a claim for a refund or credit, the date mailed is considered the date filed even if it is mailed after the original due date for the return.<strong><a href="#_ftn2" name="_ftnref2">²</a></strong><br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">[1]</a>. IRC &sect;&sect; 6012(a), 63(c), 151; Rev. Proc. 2023-34.<br /> <br /> <a href="#_ftnref2" name="_ftn2">[2]</a>. Treas. Reg. &sect; 301.7502-1(f), Harrison v. United States, No. 3:19-cv-194 (W.D. Wis. 2020).<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> Yes. There are two factors that contribute to the imposition of AMT. There are &ldquo;exclusion items&rdquo; and &ldquo;deferral items.&rdquo; Examples of an exclusion item include miscellaneous itemized deductions and state or local taxes that are deductible for regular income tax purposes, but never for AMT purposes. For this reason, there is never a credit for an exclusion item.<br /> <br /> For AMT purposes, a deferral item is simply a matter of a timing difference. For example, certain property depreciated using the accelerated depreciation method must be depreciated under the straight line method for AMT purposes. Thus, for regular income tax purposes, depreciation amounts in the early years of property depreciated under the accelerated method will be higher than under the straight line method. For that reason, it will cause AMTI to be higher than regular taxable income. However, in later years, depreciation amounts for property depreciated under the accelerated method will be lower than depreciation amounts calculated using straight line depreciation.<br /> <br /> Therefore, in the absence of an AMT credit for a deferral item, the taxpayer would be subject to double negative tax consequences with respect to one item.<br /> <p style="padding-left: 40px"><em>Example:</em> In 2023, Asher is subject to AMT. Although for regular income tax purposes, based on the accelerated depreciation method, Asher is entitled to a $2,500 depreciation deduction, for AMT purposes the straight line depreciation deduction is $1,750. As a result, Asher&rsquo;s depreciation deduction is the lesser $1,750 amount.</p><br /> <p style="padding-left: 40px">In 2024, Asher is not subject to AMT. However, based on the accelerated depreciation method, his regular income tax depreciation deduction is $1,500 (it would have been $1,750 if depreciated under the straight line method).</p><br /> <p style="padding-left: 40px">So, in the AMT year, Asher was not allowed to take the higher accelerated depreciation deduction. Later, in the non-AMT year, Asher was compelled to take the lower accelerated depreciation deduction.</p><br /> Fortunately, there is an AMT credit to allow an adjustment in the non-AMT year. Using Form 8801, the AMT from the prior year is recalculated based on what it would have been but for the deferral item.<a href="#_ftn1" name="_ftnref1">¹</a> So in the above example, Asher&rsquo;s AMT would be refigured using the accelerated depreciation deduction. The difference between the actual AMT tax and the recomputed AMT tax is called the AMT credit. Although the AMT credit is nonrefundable, it is cumulative, so it can be carried forward to subsequent tax years until it is fully used.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">[1]</a>. IRC &sect; 53(d).<br /> <br /> <a href="#_ftnref2" name="_ftn2">[2]</a>. IRC &sect; 53(b).<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> <em>Editor&rsquo;s Note:</em> Under the SECURE Act, the changes made by the 2017 tax reform legislation with respect to the kiddie tax rules were repealed. The repeal of the 2017 kiddie tax changes was effective beginning in 2020. However, taxpayers had the option of electing to apply either set of rules retroactively, in 2018 and 2019.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> The 2017 tax reform legislation aimed to simplify the treatment of unearned income of minors by applying the tax rates that apply to trusts and estates to this income. Therefore, for tax years beginning in 2018 and 2019, taxpayers could opt to treat the earned income of minors according to the individual income tax rates prescribed for single filers,<a href="#_ftn2" name="_ftnref2">²</a> and unearned income of minors according to the applicable tax bracket that would apply if the income was that of a trust or estate (for both income that would be subject to ordinary income tax rates and income that would receive capital gains treatment).<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> Under pre018 law and post019, under certain circumstances, parents can elect to include their child&rsquo;s unearned income subject to the kiddie tax on their own income tax return, thus avoiding the necessity of the child filing a return. In 2024, the election is available to parents whose child has gross income of more than $1,300 and less than $13,000,<a href="#_ftn4" name="_ftnref4">⁴</a> all of which is from interest and dividends.<a href="#_ftn5" name="_ftnref5">⁵</a> However, by doing so, the parents increase their adjusted gross income and could become subject to potential phase outs or other reductions in tax benefits that decrease as AGI exceeds certain threshold levels. The election is unavailable if there was been backup withholding under the child&rsquo;s Social Security number or if estimated tax payments have been made in the name and Social Security number of the child.<br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">[1]</a>. SECURE Act &sect; 501(c).<br /> <br /> <a href="#_ftnref2" name="_ftn2">[2]</a>. IRC &sect; 1(j)(4)(B).<br /> <br /> <a href="#_ftnref3" name="_ftn3">[3]</a>. IRC &sect; 1(j)(4).<br /> <br /> <a href="#_ftnref4" name="_ftn4">[4]</a>. Rev. Proc. 2023-34.<br /> <br /> <a href="#_ftnref5" name="_ftn5">[5]</a>. IRC &sect; 1(g)(7); Rev. Proc. 2008-66, 2008-45 IRB 107, as modified and superseded by Rev. Proc. 20091, 2009-1 CB 860.<br /> <br /> </div></div><br />