| The AMT Advisor |
| Answers to All Your Alternative Minimum Tax Questions |
What is the Alternative Minimum Tax (AMT)? In simple terms, the alternative minimum tax (AMT) is an additional tax that is calculated separately from a taxpayer's regular tax and paid in addition to the regular tax. The AMT system is based on the regular income tax system, but AMT is calculated independently from regular tax. Under the AMT system, certain regular tax deductions are disallowed or allowed over a longer period of time. In addition certain income items that are not included in regular taxable income are included in alternative minimum taxable income (AMTI) and some income items are included in AMTI in an earlier period than in regular taxable income. As discussed in the section "Outline of AMT Calculation", below, the amount of an individual taxpayer's AMT is the difference between his tentative minimum tax calculated under the AMT rules and his regular tax amount. If the taxpayer's tentative minimum tax amount is lower than his regular tax amount for the year, the taxpayer does not owe any AMT.
tax amount is greater than his regular tax amount), the total amount of tax the taxpayer will pay is equal to his tentative minimum tax amount. However, for a number of reasons, it is important to remember that technically, only the amount of the tentative minimum tax in excess of the regular tax amount is considered AMT. AMT Exemption: Because the AMT is intended to ensure that high income taxpayers pay a minimum amount of income tax, a special AMT exemption deduction is allowed for taxpayers with AMTI below a certain level. The AMT exemption prevents most but not all lower and middle income taxpayers from being subject to the AMT. To prevent higher income taxpayers from benefiting from the AMT exemption, the exemption is phased-out for taxpayers with AMTI in excess of a threshold amount. Minimum Tax Credit: As noted above, the AMT rules cause some deductions and income to be recognized in different years for regular tax and AMT purposes. When a taxpayer pays AMT due to a difference in timing of a deduction or an income item between the two systems, the taxpayer is generally entitled to a minimum tax credit which can be used to offset regular tax (but not AMT) in a future year. The minimum tax credit is calculated on Form 8801.
permanent difference between AMTI and regular taxable income (for example, state income taxes, which are allowed as a deduction in calculating regular tax but not in calculating AMT). Outline of AMT Calculation Under the AMT system, a taxpayer must determine his alternative minimum taxable income (AMTI) using the separate AMT rules. Because the calculation of AMTI is based on the calculation of regular tax income, the calculation (which is done on Form 6251) begins with the taxpayer's adjusted gross income (if the taxpayer claims a standard deduction) or the taxpayer's adjusted gross income less itemized deductions if the taxpayer itemizes. The taxpayer adds or subtracts any AMT adjustment or AMT preference items to determine AMTI. The taxpayer then applies the AMT rates to his AMTI to determine his tentative minimum tax. The tentative minimum tax is reduced by any AMT foreign tax credit available to the taxpayer. If the taxpayer’s tentative minimum tax (after applying the AMT foreign tax credit) exceeds his regular tax, the excess of the tentative minimum tax over the regular tax is the taxpayer’s AMT. The basic formula for calculating AMT is as follows:
taxpayer’s AMT liability. In order to determine the actual liability, a taxpayer must use Form 6251. Starting Point Regular Taxable income Plus/Minus AMT Adjustments Plus AMT Preference items Less AMT Exemption Equals Alternative Minimum Taxable Income (AMTI) Multiplied by AMT rates Equals Tentative Minimum Tax (before credits) Minus AMT Foreign Tax Credit Equals Tentative Minimum Tax Less Regular Tax Equals Net Alternative Minimum Tax If the net alternative minimum tax is a positive amount, the taxpayer must pay this amount in addition to his regular tax (less applicable non-refundable credits). |
How to submit a question to the AMT Advisor **************************** AMT Adjustments AMT Preferences AMT Exemption AMT Forms Minimum Tax Credit *************************** Alternative Minimum Tax Amounts AMT Rates: 26%, up to Alternative Minimum Taxable Income of $175,000 ($87,500 for Married Filing Separately) 28% on AMTI over $175,000 ($87,500 for Married Filing Separately) AMT Exemption Amounts Before Phase-Out: Taxpayers Filing Single or Head of Household : 2007 - $44,350 2008 - $46,200 2009 - $46,700 2010 - $47,450 2011 - $48,450 Married Filing Jointly or Qualifying Widower: 2007 - $66,250 2008 - $69,950 2009 - $70,950 2010 - $72,450 2011 - $74,450 Married Filing Separately: 2007 - $33,125 2008 - $34,975 2009 - $35,475 2010 - $36,225 2011 - $37,225 Phase-Out Thresholds: The AMT exemption is reduced by 25% of the amount that alternative minimum taxable income exceeds for: Single or Head of Household - $112,500 Married Filing Jointly or Qualifying Widowers - $150,000 Married Filing Separately- $75,000 |
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