Financial reporting Essay example

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The taxpayers are subject to alternative minimum tax this year. They request to know whether they have a Federal income tax refund or balance due. Since their deductible expenses and credits are limited under AMT, they may end up paying higher of the regular tax or the AMT. We are to help them calculate their tax liabilities this year and make reasonable tax planning strategies for future years.

Analyze

Regular Tax

Alternative Minimum Tax

AGI
$245,600
AMTI
$230,200
Itemized Deduction
$53,400
Exemption
$61,725
Exemption
$15,600
Tentative Minimum Tax
$40,614
Taxable Income
$176,600
Regular Tax
$33,144
Regular Tax
$33,144
AMT
$7,470

Communication

Letter to Brewsters

Gu, Liang, Peng, and Wang CPAs
305 Schlegel Hall
Rochester, NY 14627

March 3, 2014

Robert M. and Jane R. Brewster
1802 College Ave
Carmel, IN 46032

Dear Robert and Jane,

This letter is in response to your request for computing your Federal tax liability for 2013. Based on the result of our calculation, your total liability is $40,614, which includes the regular income tax liability of $33,144 and the alternative minimum tax (AMT) liability of $7,470. The calculation of the regular income tax liability and the AMT appear on Form 1040 and Form 6251, respectively.

You have a Federal income tax refund of $11,136 applied to your 2014 estimated tax. Since you are subjected to the alternative minimum tax this year, your deductions may be limited. We need to consider the timing of deductible expenses limited under AMT for future years. We have following suggestions for you:

Reducing your adjusted gross income would be a way to minimize the AMT. Sign up for pre-tax deduction plans such as a Healthcare Savings Account, or a cafeteria plan if your employer offers them. You could pay for medical insurance, dental insurance, or dependent care expenses through the plan. This will help you reduce your salaries and taxable income for both regular tax and the AMT.
We recommend careful management around the time of payment of state and local income taxes, real estate taxes and
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