Michigan State Income Tax: Instructions for Additions and Subtractions from Income, Lecture notes of Business

Download Michigan State Income Tax: Instructions for Additions and Subtractions from Income and more Lecture notes Business in PDF only on Docsity! 11 Line-by-Line Instructions for Additions and Subtractions (Schedule 1) Part-year and nonresidents, complete Schedule NR (see page 49) before proceeding. If you have income or losses attributable to other states, you must attach all relevant federal schedules and supporting statements (see page 59). The type, source and location of the income or losses must be identified. Schedules showing rental of personal property must report where the property is being used. Attach Schedule K-1s which support your attached federal Schedules B, D, E and 4797. If you do not attach these schedules and statements, processing of your return may be delayed or your credit/subtraction may be denied. Additions to Income Line 1: Enter gross interest, dividends, and income from obligations or securities of states and their political subdivisions other than Michigan. Add this income even if it comes to you through a partnership, S corporation, estate, or trust. You may reduce this income by related expenses not allowed as a deduction by Section 265(a)(1) of the Internal Revenue Code (IRC). Line 2: Enter the deduction taken for self-employment tax on your federal return and for other taxes on or measured by income, such as your share of city income tax paid by partnerships or S corporations, or your share of the taxes paid by an estate or trust. Line 3: Use Michigan Adjustments of Capital Gains and Losses (MI-1040D) and related Michigan Sales and Other Dispositions of Capital Assets (MI-8949) only if you have capital gains or losses attributable to: (1) an election to use Section 271 treatment for property acquired before October 1, 1967; (2) the sale or exchange of U.S. obligations which cannot be taxed by Michigan; or (3) the sale or exchange of property located in other states. If you reported gains on U.S. Form 4797 on property acquired before October 1, 1967, or located in other states, adjust the gain on the Michigan Adjustments of Gains and Losses From Sales of Business Property (MI-4797). Enter gains from the Michigan column of MI-1040D, line 12, and MI-4797, line 18b(2). Instructions are with each form. Line 4: Enter losses from a business or property located in another state which you own as a sole proprietor, a partner in a partnership, a shareholder in an S corporation, or as a member of a pass-through entity. If your business is taxed by both Michigan and another state, the loss must be apportioned. You must attach a Michigan Schedule of Apportionment (MI-1040H). Line 5: Enter the net loss from the federal column of your MI-1040D, line 13, or MI-4797, line 18b(2) as a positive number. Line 6: Enter the gross expenses from the production of oil and gas or the extraction of nonferrous metallic minerals (subject to Michigan severance tax) to the extent deducted in AGI. You must also subtract the related gross income on line 19. Line 7: Enter the amount of NOL deduction (NOL carryforward) used to reduce AGI. Line 8: Enter the total of the following (attach a schedule if necessary): • Add, to the extent not included in AGI, the amount of money withdrawn in the tax year from a Michigan Education Savings Program (MESP) account, including the MI 529 Advisor Plan (MAP), if the withdrawal was not a qualified withdrawal as provided in the MESP Act. You may first exclude any amount that represents a return of contributions for which no deduction was claimed in any prior tax year. • Refund received from a Michigan Education Trust (MET) contract. If you deducted the cost of a MET contract in previous years and received a refund from MET during 2014 because the MET contract was terminated, enter the smaller of: (1) the refund you received or (2) the amount of the original MET contract price including fees which you deducted in previous years. Subtractions From Income NOTE: Part-year and nonresidents, subtract only income attributable to Michigan (Schedule NR, column B) that is not included on line 13. Line 10: Enter income from U.S. government obligations (e.g., Series EE bonds, Treasury notes, etc.), including income from U.S. government obligations received through a partnership, S corporation, or other pass-through entity. This subtraction must be reduced by related expenses used to arrive at AGI. Investment companies that invest in U.S. obligations are permitted to pass the tax-free exemption to their shareholders. If income from U.S. government obligations exceeds $5,000, attach a copy of your U.S. Schedule B listing the amounts received and the issuing agency. Capital gains from the sale of U.S. government obligations must be adjusted on your MI-1040D. Line 11: Include military and Michigan National Guard retirement benefits here and on Schedule W, Table 2. Also report any taxable Tier 1 and Tier 2 railroad retirement benefits. Other qualifying public or private retirement benefits must be reported on the Michigan Pension Schedule (Form 4884) and Schedule 1, line 25. Line 12: Enter the gains from the federal column of your MI-1040D, line 12, and MI-4797, line 18b(2). See instructions for Schedule 1, line 3 on page 11. Line 13: Income Attributable to Another State. Nonresidents and part-year residents, complete Schedule NR. See instructions on page 50. Attach federal schedules. Business income that is taxed by Michigan and another state must be apportioned. You must complete and attach MI-1040H. Income reported on the MI-4797 and carried to the MI-1040D is business income, potentially subject to apportionment. Capital gains from the sale of real property or tangible personal property located outside of Michigan must be adjusted on MI-1040D. 12 Michigan residents cannot subtract salaries and wages or other compensation earned outside Michigan. However, they may be entitled to a tax credit for income tax imposed by government units outside Michigan (see page 9). Residents may subtract: • Net business income earned in other states and included in AGI, and • Net rents and royalties from real property or tangible personal property located or used in another state. Line 14: Compensation received for active duty in the U.S. Armed Forces included in AGI should be entered here and on Schedule W, Table 1. Enter only the taxable portion of Social Security and Military pay included on your U.S. Form 1040, or your U.S. Form 1040A. Do not include your total Social Security benefits. NOTE: Compensation from the U.S. Public Health Service, contracted employee pay and civilian pay are not considered military pay. Line 15: Renaissance Zone deduction. To be eligible you must meet all the following requirements: • Be a permanent resident of a Renaissance Zone designated prior to January 1, 2012, for at least 183 consecutive days • Be approved by your local assessor’s office • Not be delinquent for any State or local taxes abated by the Renaissance Zone Act • File an MI-1040 each year • Have gross income of $1 million or less. If you were a full-year resident of a Renaissance Zone, you may subtract all income earned or received. Unearned income, such as capital gains, may have to be prorated. If you lived in the Zone at least 183 consecutive days during 2014, you may subtract the portion of income earned while a resident of the Zone. If you are a part-year resident of a Zone, you must complete and attach a Schedule NR to your MI-1040. (See “Special Note” on the back of Schedule NR, page 50.) Certain Renaissance Zones began to phase out in 2007. The tax exemption is reduced in increments of 25 percent during the Zone’s final three years of existence. If you are a resident of a Zone that is phasing out (check with your local unit of government), you must reduce your deduction as follows: • 25 percent for the tax year that is two years before the final year of designation as a Renaissance Zone • 50 percent for the tax year immediately preceding the final year of the designation as a Renaissance Zone • 75 percent for the tax year that is the final year of the designation as a Renaissance Zone. For additional information regarding qualifications for the Renaissance Zone deduction, call the Michigan Economic Development Corporation at (517) 373-9808. Line 16: You may subtract Michigan state and city income tax refunds and homestead property tax credit refunds that were included in AGI. Note to farmers: You may subtract (to the extent included in AGI) the amount that your state or city income tax refund and homestead property tax credit exceeds the business portion of your homestead property tax credit. Line 17: Michigan Education Savings Program (MESP). You may deduct, to the extent not deducted in calculating AGI, the total of all contributions less qualified withdrawals and rollovers (compute the contributions, withdrawals and rollovers separately for each account) made during 2014 by the taxpayer in the tax year to accounts established through the MESP, including the Michigan 529 Advisor Plan (MAP). The deduction may not exceed $5,000 for a single return or $10,000 for a joint return per tax year. There are numerous education savings accounts available from other states and investment companies, but Michigan only allows a tax deduction for contributions to accounts established through MESP and MAP. Line 18: Michigan Education Trust (MET). You may deduct the following: • If you purchased a MET contract during 2014, you may deduct the total contract price (including the processing fee). • If you made a charitable contribution to the MET Charitable Tuition Program during 2014, you may deduct the total contribution amount. You should have received a receipt from MET to confirm the amount. All charitable donations will go toward providing scholarships to former foster care students attending Michigan colleges. • If you purchased a MET payroll deduction or monthly purchase contract, you may deduct the amount paid on that contract during 2014 (not including fees for late payments or insufficient funds). You will receive an annual statement from MET specifying this amount. • If you have terminated a MET contract, you may deduct the amount included in AGI as income to the purchaser. Line 19: Subtract the gross income from the production of oil and gas or the extraction of nonferrous metallic minerals (subject to severance tax) to the extent included in AGI. You must also add back the related expenses on line 6. Attach copies of applicable federal schedules. Line 20: Tax Agreement Tribes: A “Resident Tribal Member” (Member must be on the list submitted by their Tribe to the State of Michigan.) of a federally recognized Indian tribe that has an active tax agreement with the State of Michigan may subtract certain income that is included in his or her “Adjusted Gross Income” identified on line 10 of the MI-1040. Such exempt income may include income derived from wages, interest, and pension income. For a list of agreement tribes, go to www.michigan.gov/taxes and select “Income Tax” and then “Native American.” A list of tribes’ names will be available; click to access the tax agreement and proceed to Section IV. Non-Tax Agreement Tribes: If your tribe is not listed, your tribe does not have an active tax agreement with Michigan. Non-agreement members, see Revenue Administrative Bulletin 1988-47 for guidelines in determining exempt income that may be subtracted on line 20. NOTE: Michigan income earned while living outside of your Agreement Area (see your tribe’s agreement for a description of your Agreement Area) or Indian Country (as defined under 18 U.S.C. 1151 for Non-Agreement Tribes) may not be subtracted from Michigan AGI.