Cream of the Crop 1/Cream of the Crop 1.iso/BUSINESS/SBA62.ARJ/FSBA.EXE/F246.SBE

Text File | 1992-04-30 | 20KB | 477 lines

@111 CHAP ZZ

           ┌───────────────────────────────────────────────┐
           │  INCOME TAXES AND ESTIMATED TAX REQUIREMENTS  │
           └───────────────────────────────────────────────┘

            "Taxation without representation is tyranny."
              -- Patrick Henry

            "Taxation with representation is worse."
              -- Will Rogers

Individual federal income tax rates for 1992 (for joint filers)
are as follows:

             Taxable Income
                Bracket                 Tax Rate and Amount
            ----------------           ---------------------
            $0 to $35,800              15% of Taxable Income

            Over $35,800, up           $5,370 plus 28% of
              to $86,500                excess over $35,800

            Over $86,500               $19,566 plus 31%* of
                                        excess over $86,500


(* The actual marginal rate for taxpayers with Adjusted Gross
   Income over $105,250 may be higher, by another .93%, if they
   have certain kinds of itemized deductions which are subject
   to a phase-out, equal to a 3% reduction in allowable itemized
   deductions for AGI in excess of $100,000.  In addition, joint
   filers with AGI over $157,900 will have part of their personal
   exemptions phased out, at a rate of 2% of the exemption amount
   for each $2500 of AGI, or fractional portion of $2500, in
   excess of $157,900.  This would add approximately 1/2% to the
   effective tax rate for each personal exemption claimed.  Thus,
   for a family of four in the 31% tax bracket, with AGI in the
   phase-out range for both itemized deductions and personal
   exemptions, the effective marginal tax rate on each additional
   dollar of income would be about 34% in 1992.  Congress
   "simplifies" the tax law like this each year, for which we
   can all be grateful.)

  Use TAXES command--MAIN Menu--to calculate your 1991 & 1992 taxes.

Each of the rate brackets noted above is indexed for inflation
in each year.  If your filing status is other than married, filing
jointly, the size of each of the above brackets is smaller.  For
example, for a single person, the 15% bracket ends at only $21,450
of income, rather than the $35,800 for married filing joint, in 1992.

PAYMENTS OF ESTIMATED TAX.  For individual taxpayers, such as self-
employed persons (sole proprietors or partners in a partnership),
whose tax liability is not substantially covered by withholding
from wages, it is necessary to make quarterly payments of federal
(and in most cases, state) estimated income tax and federal self-
employment tax.  The federal tax payments must be made with Form
1040-ES by the 15th day of April, June, September and on January
15th of the following year.  Any remaining tax due (or refund) is
reported on Form 1040, individual income tax return, on the follow-
ing April 15th.

To avoid penalties for underpayment of estimated tax, the amount
of the quarterly payments must generally equal 90% of the tax
liability, with a "safe harbor" for most taxpayers if they pay in
an amount based on 100% of the PRIOR year's tax liability during
the current year.

NOTE: This safe harbor is no longer allowed after 1991 for certain
taxpayers if:

   . their AGI (Adjusted Gross Income) for the current year
     exceeds $75,000; and

   . their specially modified AGI for the current year exceeds
     last year's AGI (not subject to the special modifications)
     by more than $40,000 ($20,000 if filing married, separate);
     and

   . they paid estimated tax in at least one of the three pre-
     ceding tax years (or were assessed a penalty for failing
     to do so).

The special "modifications" to the current year's AGI that are
excluded include gain from a sale or involuntary conversion of a
residence and income from an S corporation or partnership, where
the taxpayer has less than a 10% interest in the entity.)

Taxpayers who are no longer permitted to use the "safe harbor,"
must pay in, as estimated tax, the LESSER of:

   . 90% of the current year's tax liability (the general rule for
     all taxpayers, except where the safe harbor applies); or

   . the GREATER of an amount based on:  (1) 90% of the tax on the
     "modified" current year taxable income, or (2) 100% of last
     year's tax liability.

For all practical purposes, the new rule means that, starting in
1992, if you are subject to the new rule, and your AGI for the
current year is not subject to any of the modifications described
above, YOU WILL ALWAYS HAVE TO PAY ESTIMATED TAX BASED ON 90% OF
THE CURRENT YEAR'S TAX LIABILITY.  (Except on your first quarterly
estimate, which can still be based on 100% of the prior year's
tax; or on any subsequent quarterly estimate, where your annual-
ized income to date indicates you will not exceed the $40,000 or
$75,000 threshold for the year.)

Clear as mud?  This is merely Congress's latest "simplification"
of the estimated tax rules, enacted November 15, 1991, and there
are exceptions to the above exceptions, but we suspect you may
already be starting to get angry at your Congressthing and some-
what confused by this point, so we won't go any deeper into this
particular hall of mirrors....

           ┌───────────────────────────────────────────────┐
           │  No man is safe in his bed when the Congress  │
           │  is in session." -- Benjamin Franklin         │
           └───────────────────────────────────────────────┘

SCHEDULES C AND E.  There is no separate tax return form for sole
proprietors. A sole proprietor simply includes the income or loss
from his or her business on Schedule C of form 1040.  Similarly,
partnerships generally pay no tax either, although they file an
information return annually (Form 1065) on which the income or
loss of each partner is reported on a Form K-1.  Each partner
reports the income or loss items on the K-1 form on appropriate
schedules of his or her Form 1040 (mainly on the Schedule E).
Accordingly, partnerships and proprietorships do not, as enti-
ties, make estimated tax payments.

@CODE: AL
The maximum individual income tax rate in Alabama is 5%, which
starts at taxable income levels of $6,000 for married persons
filing jointly, or at $3,000 for other individual taxpayers.
@CODE:OF
@CODE: AZ
Individual tax rates in Arizona were reduced to a maximum of 7%
on income over $300,000 ($150,000 for single or married filing
separate).  (Reduced from 8% maximum rate in 1989, but rate
brackets and personal exemptions are no longer adjusted for
inflation after 1989.)
@CODE:OF
@CODE: AR
Individual tax rates in Arkansas start at 1% and rise to a
maximum of 7% on taxable income over $25,000.
@CODE:OF
@CODE: CA
           ┌───────────────────────────────────────────────┐
           │        CALIFORNIA PERSONAL INCOME TAXES       │
           └───────────────────────────────────────────────┘

California personal income tax rates begin at 1% of income and
rise to a maximum rate of 11% on income over $200,000 (over
$400,000 for married taxpayers filing jointly), which is higher
than the flat 9.3% rate at which California taxes the income of
corporations.  In addition, the individual alternative tax rate
was raised to 8.5% in 1991, so the alternative tax has now
become harder to avoid.

California's estimated income tax payment system parallels the
federal rules rather closely, with payments made on Form 540-ES.
As under federal law, partnerships in California are not generally
taxable entities, but must still file an annual information return
(Form 565) by April 15th of the following year (for a calendar
year partnership).  However, a limited partnership in California
is now subject to payment of annual minimum franchise tax ($800 a
year), the same as paid by corporations.

@CODE:OF
@CODE: CO
Colorado taxes individual income at a flat rate of 5%, based on
federal taxable income with certain adjustments.
@CODE:OF
@CODE: CT
Connecticut has enacted a personal income tax, at the rate of
1.5% of taxable income in 1991, and 4.5% after 1991.  The former
tax on capital gains and dividends is now being phased out.
@CODE:OF
@CODE: DE
Individual tax rates in Delaware start at 3.2% on income over
$2,000 and rise to 7.7% on income over $40,000.
@CODE:OF
@CODE: DC
Individual tax rates in the District are fairly high, with a top
rate of 9.5% on income of only $20,000 or more.  Note that
business income of a partnership or sole proprietorship is NOT
generally reported on the individual partner or proprietor's D.C.
income tax return, but is instead separately taxable under the
D.C. Unincorporated Business Franchise Tax (Form D-30) at a tax
rate of 10.5% (10.25% for periods ending after September 30, 1992).
@CODE:OF
@CODE: GA
Georgia individual tax rates are fairly low, starting out at 1%
and rising to a maximum rate of 6% on income over $10,000 (joint
filers).
@CODE:OF
@CODE: HI

             ┌───────────────────────────────────────────┐
             │        HAWAII PERSONAL INCOME TAXES       │
             └───────────────────────────────────────────┘

Hawaii personal income tax rates begin at 2% of income and rise
to a maximum rate of 10%. Since the maximum corporate tax rate
is only 6.4%, there is often a considerable tax incentive to
incorporate a Hawaii business, although the opposite tilt in
federal corporation tax rates (since the federal Tax Reform Act
of 1986) will often more than offset the state tax savings from
incorporating.

Hawaii's estimated income tax payment system closely parallels
the federal rules, with individual estimated tax declarations
made on Form N-1.  Quarterly payments are due in the same months
as federal estimates, but on the 20th day (not the 15th) of each
such month.  As under federal law, partnerships in Hawaii are
not taxable entities, but must still file an annual information
return (Form N-20) each year.  The income from a partnership is
reported on Schedule E of the partner's Hawaii individual income
tax return.

@CODE:OF
@CODE: ID
Individual tax rates in Idaho start at 2% and range up to a
maximum of 8.2% in the top bracket.
@CODE:OF
@CODE: IL
Illinois taxes individual income at a rate of 3%, applied to
federal adjusted gross income with modifications.  This tax
rate is due to decrease to 2.75% after June 30, 1993.
@CODE:OF
@CODE: IN
Personal income in Indiana is taxed at a rate of only 3.4%,
based on federal adjusted gross income, with certain adjustments.
@CODE:OF
@CODE: IA
Iowa has relatively high individual tax rates, reaching a maximum
of 9.98% on taxable income in the highest bracket (1992).
@CODE:OF
@CODE: KS
Kansas has a maximum individual tax rate (joint returns) of only 5.15%
for taxpayers not electing to deduct federal income taxes paid, or
5.95% for other taxpayers.  The top rate is 8.75% for those who deduct
the federal tax.  However, newly enacted legislation, if approved by
the Governor, would increase the top rate to 6.45% for joint filers
and 7.75% for other taxpayers, and would do away with the election to
deduct federal income taxes on the Kansas tax return.
@CODE:OF
@CODE: KY
Individual income in Kentucky is taxed at a maximum rate of 6%,
on income of over $8,000.
@CODE:OF
@CODE: LA
Personal income tax rates in Louisiana top out at 6% on income
over $50,000 (per individual taxpayer, regardless of filing
status).
@CODE:OF
@CODE: LS
Personal income tax rates in @STATE start out at 96% on
and go up as high as 1000%.  Members of the Inner Party are
exempt.
@CODE:OF
@CODE: ME
Individual tax rates under Maine's income tax law start at 2.1%
and go up to a maximum of 9.89% (1991 rates), which includes the
1991-1992 surtax.
@CODE:OF
@CODE: MD
Maryland taxes the income of individuals at rates of 2% to 6%.
The 5% tax brackete begins at income levels of only $3,000,
however, and only reaches 6% at levels of $150,000 for joint
filers or heads of household ($100,000 for single or married
filing separate).
@CODE:OF
@CODE: MA
Most kinds of income, such as earned income, are taxed at an
individual tax rate of only 5.95% in Massachusetts after 1991.
However, investment income such as interest, dividends and net
capital gains are taxed at a 12% rate.
@CODE:OF
@CODE: MI
Michigan imposes a 4.6% income tax on the taxable income of
individual taxpayers, which is based on federal taxable income
with certain adjustments and modifications.  However, a person's
business income is also subject to a 2.35% Michigan "Single
Business Tax," which is somewhat similar to an income tax, but
with no deductions for wages or salaries, and without taking
into account interest income or expense or royalty income or
expense, plus other adjustments.
@CODE:OF
@CODE: MN
Minnesota taxes individual incomes at rates of 6% to 8.5%.  There is
also an alternative minimum tax, applied at a 7% rate beginning in
1991.
@CODE:OF
@CODE: MS
Mississippi taxes individuals' taxable income of over $10,000
at a 5% rate.  Tax rates start at 3% on the first $5,000 and go
up to 5% on taxable income over $10,000.
@CODE:OF
@CODE: MO
Tax rates on individuals in Missouri start at 1.5% and rise to
6% on income over $9,000.
@CODE:OF
@CODE: MT
Montana has the distinction of having one of the highest
individual tax rates of any state, at 11% on income over
$57,600 in 1991.  A proposed 5% surtax that was passed by
the legislature in 1991 was vetoed.
@CODE:OF
@CODE: NB
Individual income tax rates in Nebraska start at 2.37% and go up
to a maximum rate of 6.92% in 1991.
@CODE:OF
@CODE: NJ
Personal income tax rates in New Jersey were among the lowest
in the nation, beginning at 2% on the first $20,000 of New
Jersey taxable income and topping out at only 3.5% on income
over $50,000 in 1990.  However, the maximum rate increased to
7% for various brackets, depending on filing status, beginning
in 1991.
@CODE:OF
@CODE: NM
New Mexico's personal income tax begins a tax rate of 2.4% on
income of $8,000 or less and tops out at a maximum tax rate of
8.5% on taxable income in excess of $64,000.
@CODE:OF
@CODE: NY
New York State individual income tax rates start at 4% on the
first $11,000 of income and are graduated up to a maximum rate
of 7.875% on income taxable income of over $26,000 (1992 rates,
for married couples filing joint returns).  The top rate is
scheduled to decline slightly in 1993, but don't hold your
breath, in light of the state's current fiscal dilemma.  There
is also a "tax table benefit recapture supplemental tax" that
takes back the benefit of lower tax brackets, on a sliding
scale, for taxpayers whose adjusted gross incomes exceed $100,000,
with full recapture occurring at levels of $150,000 or more.  Note
that taxpayers in New York City are also subject to New York City
income tax.
@CODE:OF
@CODE: NC
Tax rates on individual income in @STATE start at 6% and
go up to a maximum tax bracket of 7.75%.
@CODE:OF
@CODE: SC
Tax rates on individual income in @STATE start at 2.5% and
go up to a maximum tax bracket of 7% on income over $10,350, in
1991, with the top bracket starting at $10,600 in 1992.
@CODE:OF
@CODE: ND
North Dakota has a very high nominal tax rate of 12% on individual
income over $50,000.  However, taxpayers may elect to instead pay
a tax equal to 14% of their federal income tax (with adjustments)
for the year.
@CODE:OF
@CODE: OH
Ohio's highest individual tax rate is 6.9%.  However, this rate
is only reached at income levels of $100,000 or more.
@CODE:OF
@CODE: OK
Oklahoma's personal income tax law has a relatively high maximum
tax rate of 10%, but allows taxpayers a deduction for federal
income taxes.  For taxpayers who do not deduct federal income
tax, a lower Oklahoma tax rate applies, with a maximum bracket
of only 7% (in 1991).
@CODE:OF
@CODE: OR
Oregon taxes individual income at rates ranging from 5% to 9%.
@CODE:OF
@CODE: PA
Pennsylvania's personal income tax was recently increased from
the former rate of only 2.1%.  The new tax rates is 2.8%, plus
a temporary surtax of 0.3% during the last six months of 1991 and
the first six months of 1992.  No personal exemptions are allowed.
In addition, the City of Philadelphia imposes a city tax on wages.
@CODE:OF
@CODE: RI VT
Individual taxpayers in @STATE compute their state income tax
as a percentage of their federal income tax liability, which currently
@CODE:OF
@CODE: RI
is 27.5% of the federal tax (after 1990).
@CODE:OF
@CODE: VT
is 28% of the federal liability, rising to as much as 34% of the
federal tax liability over $13,100 in 1991-93 tax years.  The rate
is supposed to go back down to 25% after 1993.
@CODE:OF
@CODE: UT
Utah taxes individual taxpayers at income tax rates ranging from
2.55% up to 7.2%.
@CODE:OF
@CODE: VA
Personal income tax rates in Virginia range from 2% up to a
maximum tax bracket of 5.75%, which begins at $17,000 of income.
@CODE:OF
@CODE: WV
West Virginia taxes individual income at rates up to 6.5% on
income of over $60,000 (over $30,000 for married filing separate
returns).
@CODE:OF
@CODE: WS
Wisconsin individual income tax rates range from a low bracket
of 4.9% to a top bracket of 6.93%
@CODE:OF
@CODE: AK FL SD NV TX WY WA TN NH
Note that there is no individual state income tax in @STATE.
@CODE:OF
@CODE: SD
However, South Dakota voters will decide on November 3, 1992, whether
or not to approve an income tax, with rates up to 6%.
@CODE:OF
@CODE: TN NH
(Except on certain investment income, such as interest and dividends.)
@CODE:OF
@CODE: NH
However, New Hampshire imposes an 8% Business Profits Tax on all
businesses with over $12,000 of gross income.
@CODE:OF
@CODE: WA
However, Washington imposes a Business and Occupations tax, which
varies by type of business, on most forms of business gross income.
The tax rate ranges from less than 1/2 of 1% up to 1.5%, generally.
@CODE:OF

           ┌───────────────────────────────────────────────┐
           │      CORPORATE ESTIMATED TAX REQUIREMENTS     │
           └───────────────────────────────────────────────┘

A C corporation (or an S corporation, if it is subject to tax,
which it usually is not) must make quarterly payments of esti-
mated federal corporation income taxes on the 15th day of the
4th, 6th, 9th, and 12th months of its taxable year.  All such
tax payments must be made as tax deposits in a depository bank,
accompanied by a Federal Tax Deposit coupon.  Don't attempt to
send such corporate tax payments directly to the IRS, which
will either return them to you, lose them, or ignore them, any
one of which results will be most unpleasant to you, including
the standard 5% penalty that will apply if you try making a direct
payment to the IRS. (This, of course, is the infamous Catch 22
you've heard so much about -- You can be penalized for PAYING
your taxes, as well as for not paying them!)

With certain exceptions, a corporation must generally pay in 90%
of its total tax liability for the year as estimated tax payments
in order to avoid the penalty for underpayment of estimated tax.
However, starting in 1992, the percentage of its current year tax
that a corporation must pay in as estimated tax, to avoid under-
payment penalties, is increased from 90% to 93%, increasing to 95%
in 1993 through 1996, before (theoretically) going back to 90%
after 1996.


@CODE: CA
California also requires corporations to make quarterly estimated
tax payments, on the same due dates as the federal quarterly
payments, and generally following the same rules.  However, the
first California quarterly franchise tax payment by a corporation
must at least equal the minimum franchise tax for the year, which
is $800 a year.

@CODE:OF
@CODE: HI
Hawaii also requires corporations to make estimated income tax
payments, with Form N-3.  However, unlike the quarterly federal
payments, Hawaii requires only 2 annual payments to be made, on
September 20 and the following January 20th for a calendar year
corporation.

@CODE:OF
@CODE: TX WY NV WA
Most states also require corporations to make payments of estimated
corporate income taxes (but @STATE has no such taxes).