TAX 9869 Lecture Notes - Lecture 34: Withholding Tax, Tax Rate, Foreign Tax Credit

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17 Jul 2020

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Is this creditable: honduran real property tax: no, vat: not a creditable tax, federal income tax on biz income: yes, state income tax: yes. Cant say for sure: one court case said it wasn"t creditable. Some said it is on income: no, you cannot credit some and deduct some. But taxes that aren"t creditable; you can deduct. Creditable taxes you have a choice: credit for income tax and deduction for property + vat. 50,000 of canadian sourced interest income (reduced tax rate of 5%) Ftc is 37,500: 105,000-37500=67,500, excess credits get carried back 1 yr in general basket and 10 carried fwd in general basket; don"t cross credit (passive against general or general against passive) Figure out fsi or income allocated to each basket. Sometimes you end up w/ a loss: fsi making $ in general basket but branch activity loss, or general basket losing $ and passive basket thats making $

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Paloma Co. Stars has four employees. FICA Social Security taxesare 6.2% of the first $117,000 paid to each employee, and FICAMedicare taxes are 1.45% of gross pay. Also, for the first $7,000paid to each employee, the companyâs FUTA taxes are .6% and SUTAtaxes are 6.20%. The company is preparing its payroll calculationsfor the week ended August 25. Payroll records show the followinginformation for the companyâs four employees.

				Current Week

Name	Gross Pay through Aug. 18			Gross Pay			Income Tax Withholding
Dahlia		$	115,600		$	2,600		$	369
Trey			116,250			750			121
Kiesha			8,300			570			49
Chee			2,250			520			39

In addition to gross pay, the company must pay one-half of the$84 per employee weekly health insurance; each employee pays theremaining one-half. The company also contributes an extra 8% ofeach employeeâs gross pay (at no cost to employees) to a pensionfund.

Required:

Compute the following for the week ended August 25.(Round your intermediate calculations and final answers to2 decimal places.):

1) Employees' FICAWithholdings for Social Security
Employee	Earnings Subject to Tax	Tax Rate	Tax Amount
Dahlia
Trey
Kiesha
Chee
		Total

2) Employees' FICAWithholdings for Medicare
Employee	Earnings Subject to Tax	Tax Rate	Tax Amount
Dahlia
Trey
Kiesha
Chee
		Total

3) Employer's FICA Taxes forSocial Security
Employee	Earnings Subject to Tax	Tax Rate	Tax Amount
Dahlia
Trey
Kiesha
Chee
		Total

4) Employer's FICA Taxes forMedicare
Employee	Earnings Subject to Tax	Tax Rate	Tax Amount
Dahlia		1.45%
Trey		1.45%
Kiesha		1.45%
Chee		1.45%
		Total

5) Employer's FUTA Taxes
Employee	Earnings Subject to Tax	Tax Rate	Tax Amount
Dahlia		0.60%
Trey		0.60%
Kiesha		0.60%
Chee		0.60%
		Total

6) Employer's SUTA Taxes
Employee	Earnings Subject to Tax	Tax Rate	Tax Amount
Dahlia		6.20%
Trey		6.20%
Kiesha		6.20%
Chee		6.20%
		Total

7) Each Employee's Net(take-home) Pay
Employee	Dahlia	Trey	Kiesha	Chee	Total
Gross Pay	$2,600.00	$750.00	$570.00	$520.00	$4,440.00
Income tax withholding	369.00	121.00	49.00	39.00	578.00
FICA - Social Security
FICA - Medicare
Health Insurance
Net Pay

8) Total Payroll RelatedExpense for Each Employee
Employee	Dahlia	Trey	Kiesha	Chee	Total
Gross Pay	$2,600.00	$750.00	$570.00	$520.00	$4,440.00
FICA - Social Security
FICA - Medicare
FUTA
SUTA
Health Insurance
Pension
Total Payroll Expense

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Paloma Co. has four employees. FICA Social Security taxes are 6.2% of the first $118,500 paid to each employee, and FICA Medicare taxes are 1.45% of gross pay. Also, for the first $7,000 paid to each employee, the companyâs FUTA taxes are 0.6% and SUTA taxes are 2.15%. The company is preparing its payroll calculations for the week ended August 25. Payroll records show the following information for the companyâs four employees.

				Current Week
Name	Gross Pay through Aug. 18			Gross Pay			Income Tax Withholding
Dali		$	115,800		$	3,600		$	511
Trey			116,450			2,050			330
Kiesha			8,700			610			53
Chee			2,650			560			42

In addition to gross pay, the company must pay one-half of the $92 per employee weekly health insurance; each employee pays the remaining one-half. The company also contributes an extra 8% of each employeeâs gross pay (at no cost to employees) to a pension fund.

Required:

Compute the following for the week ended August 25. (Round your intermediate calculations and final answers to 2 decimal places.):

1) Employees' FICA Withholdings for Social Security
Employee	Earnings Subject to Tax	Tax Rate	Tax Amount
Dali
Trey
Kiesha
Chee
		Total	$0.00

2) Employees' FICA Withholdings for Medicare
Employee	Earnings Subject to Tax	Tax Rate	Tax Amount
Dali
Trey
Kiesha
Chee
		Total	$0.00

3) Employer's FICA Taxes for Social Security
Employee	Earnings Subject to Tax	Tax Rate	Tax Amount
Dali
Trey
Kiesha
Chee
		Total	$0.00

4) Employer's FICA Taxes for Medicare
Employee	Earnings Subject to Tax	Tax Rate	Tax Amount
Dali
Trey
Kiesha
Chee
		Total	$0.00

5) Employer's FUTA Taxes
Employee	Earnings Subject to Tax	Tax Rate	Tax Amount
Dali
Trey
Kiesha
Chee
		Total	$0.00

6) Employer's SUTA Taxes
Employee	Earnings Subject to Tax	Tax Rate	Tax Amount
Dali
Trey
Kiesha
Chee
		Total	$0.00

7) Each Employee's Net (take-home) Pay
Employee	Dali	Trey	Kiesha	Chee	Total
Gross Pay	$3,600.00	$2,050.00	$610.00	$560.00	$6,820.00
Income tax withholding	511.00	330.00	53.00	42.00	936.00
FICA - Social Security					0.00
FICA - Medicare					0.00
Health Insurance					0.00
Net Pay					$0.00

8) Total Payroll Related Expense for Each Employee
Employee	Dali	Trey	Kiesha	Chee	Total
Gross Pay	$3,600.00	$2,050.00	$610.00	$560.00	$6,820.00
FICA - Social Security	0.00	0.00	0.00	0.00	0.00
FICA - Medicare	0.00	0.00	0.00	0.00	0.00
FUTA	0.00	0.00	0.00	0.00	0.00
SUTA	0.00	0.00	0.00	0.00	0.00
Health Insurance					0.00
Pension					0.00
Total Payroll Expense	$3,600.00	$2,050.00	$610.00	$560.00	$6,820.00

azurecheetah938

1.( T or F ) An individual who directly owns real estate andearns net rental income for the tax year January 1 â December 31,2018 will have an effective tax rate of 29.6% on it.

2.( T or F ) Jumbo LLC, is treated as a partnership and is ownedby 50% by two individuals, Rod and Tom. Jumbo LLC acquired BighornCenter, an industrial rental property for $2 million and collectsrent from tenants. When Bighorn Centerâs value increases to $3million, Jumbo refinances the debt and distributes $500,000 to bothRod and Tom. Rod and Tom treat the $500,000 as ordinary incomesubject to a 39.6% tax rate.

3.( T or F ) A gain resulting from the sale of REIT shares whenthat REIT is domestically controlled will not result in any U.S.federal income tax withholding for non-U.S. holders of the REITstock.

4.( T or F ) A general partnership can be taxed as a corporationif so elected under the check the box rules.

5.( T or F ) An individual investor can own 100% of a REIT.

6.( T or F ) Since dividends are not UBTI, a tax exempt investorwill not have UBTI on dividend income when debt is used to purchasethe stock that paid the dividend.

7.(T or F) An individual, who qualifies as a real estateprofessional, can treat a particular rental real estate activity asnon-passive even when that individual does not materiallyparticipate in the real estate activity.

8.(T or F) Withholding tax to non-US investors on interestincome and dividends may be reduced under the terms of atreaty.

9. Assume a building, owned by a REIT, increases invalue and the REIT that owns it sells the building for $120 millionand then makes a capital gain distribution to its shareholders.Which of the following is true regarding a U.S. individualinvestor's tax treatment:

A. The gain on the sale will be taxed at the ordinary income taxrate.

B. The gain on the sale will be taxed at the capital gain taxrate.

C. There is no tax on the net gain at the shareholder level.

D. The tax treatment is the same for the US investor as it isfor the foreign investor.

E. None of the above.

11. Provide the tax that would be applied for each ofthe following:

1. Withholding tax on passive-typeincome (interest, dividends, etc..) for non-US investors withrespect to US source income. _______________.

2. Tax imposed on a foreigncorporation based on a deemed distribution of US branchoperations____________________.

3. Withholding tax on US businessincome income that is effectively connected with a United Statestrade or business. ______________.

13. Which of the following would cause the largestproblem for an individual who wants to be taxed as a real estateprofessional (which one would be the most difficult to overcome ifan individual wanted to be treated as a real estateprofessional)?

A. The individual owns only rental real estate properties andspends all of his/her time managing them.
B. The individual works for herself as a commissioned real estatebroker and invests in one rental property on the side.

C. The individual works full time for a company that is activein a real estate trade or business (periodically requiringovertime) but has no ownership in the company.

D. The individual owns and operates a hotel where she spends2,000 hours per year and she also invests in a small portfolio ofrental real estate properties.

E. None of the above would cause problems for an individual tobe classified as a real estate professional.

14. What are the highest tax rates for each of thefollowing scenarios?

____. Operating income from a hotel earned by a foreigncorporation (excluding branch profits tax)

____. Interest income earned by a foreign corporationfrom a US borrower

____. Net rental income earned by an U.S. individual(exclude the passthrough deduction)

____. Capital gain earned by an U.S.individual

____. Interest income earned by a U.S.corporation

____. Capital gain earned by an U.S.corporation

____. Depreciation recapture on the sale of U.S. realestate (Section 1250 property) for an individual

____. Depreciation recapture on the sale of U.S. realestate (Section 1245 property) for an individual

15. Identify the following as "ECI" (effectivelyconnected income) or "Not ECI" (not effectively connected income)if earned by a foreign person:

________Rental income from an actively managed storage center inFlorida

________ Interest income from loans to non-U.S. corporateborrowers.

________ A gain on the sale of a shopping center located inBermuda.

TAX 9869 Lecture Notes - Lecture 34: Withholding Tax, Tax Rate, Foreign Tax Credit

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