Table A
Status | (1) | (2) |
Married individuals filing joint returns and surviving spouses | $52,000 | $18,060 |
Heads of households | 38,000 | 12,240 |
Unmarried individuals other than surviving spouses and heads of households | 38,000 | 13,290 |
Trusts and estates | 26,000 | 9,030 |
Table B
Status | (1) | (2) |
Married individuals filing joint returns and surviving spouses | $100,000 | $45,180 |
Heads of households | 70,000 | 30,260 |
Unmarried individuals other than surviving spouses and heads of households | 50,000 | 20,190 |
Trusts and estates | 50,000 | 22,590 |
A net operating loss carried to the taxable year is properly allocable to or chargeable against earned income in such year to the extent of the excess (if any) of the deductions for the loss year which are properly allocable to or chargeable against earned income and which are allowable under section 172(d) in determining a net operating loss, over the earned income for the loss year. If the excess described in the preceding sentence is less than the entire net operating loss, such excess and the balance of such loss shall be deemed to reduce taxable income ratably for any taxable year to which such loss may be carried. See examples (3) and (4) in subparagraph (4) of this paragraph.
exceeds $30,000.
(a) Salary | $155,000 | |
(b) Dividends and interest | 60,000 | |
Total | 215,000 | |
(c) Deductible travel expenses of employee allocable to earned income | 5,000 | |
(d) Adjusted gross income | $210,000 | |
(e) Exemptions and itemized deductions | 38,000 | |
(f) Taxable income | 172,000 |
In addition, the taxpayers have tax preference items for 1976 of $80,000 attributable to the exercise of a qualified stock option and total tax preference items of $300,000 for the years 1972 through 1975. Since the items of tax preference for 1976 exceed the average of the items of tax preference for the years 1972 through 1976, the tax preference offset for 1976 is $50,000 ($80,000-$30,000).
(a) Earned income | $155,000 | |
(b) Earned net income ($155,000-$5,000) | 150,000 | |
(c) Taxable income | 172,000 | |
(d) Adjusted gross income | 210,000 | |
(e) Taxable income attributable to earned net income: | ||
$172,000(c) * ($150,000(b) / $210,000(d) | $122,857 | |
(f) Tax preference offset | 50,000 | |
(g) Earned taxable income | 72,857 |
(a) Applicable amount from col. (2) of table A, § 1.1348-2(a) | $18,060 | |
(b) 50 pct of amount by which $72,857 (earned taxable income) exceeds $52,000 (applicable amount from col. (1) of table A, § 1.1348-2(a) ) | 10,429 | |
(c) Tax computed under section 1 on $172,000 (taxable income) | $91,740 | |
(d) Tax computed under section 1 on $72,857 (earned taxable income) | 29,291 | |
(e) Item (c) minus item (d) | 962,449 | |
(f) Tax (total of items (a), (b), and (e)) | 90,938 |
(a) Salary | $210,000 | |
(b) Dividends and interest | 20,000 | |
(c) Net long-term capital gains | 100,000 | |
Total | 330,000 | |
(d) Sec. 1202 deduction (1/2 of net long-term capital gains) | 50,000 | |
(e) Adjusted gross income | $280,000 | |
(f) Exemptions and itemized deductions | 40,000 | |
(g) Taxable income | 240,000 |
The taxpayers' tax preference item for 1976 is one-half of the net long-term capital gains of $100,000, or $50,000. The taxpayers have no items of tax preference for the years 1972 through 1975. Accordingly, their tax preference offset for 1976 is $20,000 ($50,000-$30,000).
(a) Earned net income | $210,000 | |
(b) Taxable income | 240,000 | |
(c) Adjusted gross income | 280,000 | |
(d) Taxable income attributable to earned net income: | ||
$240,000(b) * ($210,000(a) / $280,000(c)) | 180,000 | |
(e) Tax preference offset | $20,000 | |
(f) Earned taxable income | $160,000 |
(a) Applicable amount from col. (2) of table A, § 1.1348-2(a) | $18,060 | |
(b) 50 pct of amount by which $160,000 (earned taxable income) exceeds $52,000 (applicable amount from col. (1) of table A, § 1.1348-2(a) ) | 54,000 | |
(c) Tax computed under section 1201(b) on $240,000 (taxable income): | ||
(1) Tax under section 1201(b)(1) (tax under section 1 on $190,000 (taxable income excluding capital gains)) | $104,080 | |
(2) Tax under section 1201(b)(2) (25 pct of subsection (d) gain of $50,000) | 12,500 | |
(3) Tax under section 1201(b)(3) (tax under section 1 on $240,000 (taxable income) less tax under section 1 on $215,000 (amount subject to tax under section 1201(b)(1) plus 50 pct of subsection (d) gain)) ($138,980-$121,480) | 17,500 | |
Total | 134,080 | |
(d) Tax computed under section 1 on $160,000 (earned taxable income) | 83,580 | |
(e) Item (c) through item (d) | 50,500 | |
(f) Tax (total of items (a), (b), and (e)) | $122,560 |
1973 | 1976 | |
Gross income from law practice | $240,000 | $100,000 |
Dividends | 60,000 | 20,000 |
Expense paid in law practice | 50,000 | 160,000 |
Investment interest | 30,000 | 10,000 |
Casualty loss on personal residence (amount in excess of $100) | 50,000 |
Gross income ($240,000 + $60,000) | $300,000 |
Adjusted gross income ($300,000 - $50,000 - $100,000) | 150,000 |
Taxable income ($150,000 - $30,000 - $750) | 119,250 |
Earned net income ($240,000 - $50,000 - $60,000) | 130,000 |
Earned taxable income ($130,000 / $150,000 * $119,250) | $103,350 |
A's earned income from the laundry business is limited to $6,000 (30 percent of $20,000). A's total earned income is $36,000 ($80,000 + $60,000). Since the section 62 deductions of the laundry business have already been taken into account in computing net profits, they are not again taken into account in computing earned net income. Accordingly, A's earned net income for 1975 is $86,000.
26 C.F.R. §1.1348-2