The Amt Advisor

Answers to all your Alternative Minimum Tax law,
form preparation, and planning questions provided
by a licensed Tax Attorney \ C.P.A.

Click here for instructions on how to submit a question or a
service request to the AMT Advisor, or scroll down to learn more
about what the AMT Advisor can do for you.

Answers to your questions about AMT law - Alternative Minimum Tax law
is difficult for a person without specialized tax training to understand. Even
with the necessary information resources, it can take an average taxpayer
hours to determine the answer to a question about the AMT. The AMT
Advisor, an attorney with a Masters of Law degree in Taxation from one of the
nation's leading tax law programs, can provide the answers to all your AMT
law questions, simple and complex.

Assistance with AMT tax form preparation - The tax forms that taxpayers
subject to the AMT are required to file can be as confusing as the AMT law
itself. Unfortunately, the form instructions are often of little help to the average
taxpayer. The AMT Advisor is a licensed C.P.A. with extensive tax accounting
knowledge and return preparation experience, able to assist you with the
preparation of AMT tax forms and the calculation of specific items.

Answers to your questions about Incentive Stock Options and the
Minimum Tax Credit - The AMT rules regarding the exercise of incentive
stock options (ISOs) and the Minimum Tax Credit are baffling to most
taxpayers, and the incorrect application of the rules can cost a taxpayer who
has exercised ISOs thousands of dollars in overpaid taxes and missed credits.
The AMT Advisor has the expertise to help you make sure that you don't pay
more AMT than you should because of the exercise of ISOs, and that you are
able to use the Minimum Tax Credit generated by the exercise of ISOs to your
full advantage.

Assistance with correspondence and questions from the IRS - Got a
letter from the IRS about the AMT? Don't understand what they are talking
about or what they want? The AMT Advisor can review the correspondence,
explain what it means, and advise you on how best to proceed in response to
it.

AMT tax planning - The AMT Advisor can advise you how to minimize your
exposure to the AMT in future years.

Click here for instructions on how to submit a question to the
AMT Advisor.

What is the Alternative Minimum Tax (AMT)?

In simple terms, the AMT is an additional tax that is calculated separately from
a taxpayer's regular tax and paid in addition to the regular tax. It was created
to ensure that a taxpayer is not able to use certain deductions, credits and
exclusions that are allowed under the regular tax system to lower his or her
ultimate tax liability below a minimum amount. Most taxpayers are not subject
to the AMT, but any taxpayer who is subject to the regular tax is potentially
subject to it. Fairness and equity play no part in the alternative minimum tax,
and the AMT a taxpayer must pay is mechanically determined under the AMT
rules. Currently, the AMT still only affects a relatively small number of
taxpayers (between 5 and 10 percent of all taxpayers), but the number is
growing. The AMT is not restricted to high-income taxpayers, and many
middle-income taxpayers pay some amount of AMT every year.

Although the alternative minimum tax is separate from the regular tax, the
starting point of the computation of the AMT is regular tax adjusted gross
income (AGI). A taxpayer is required to add back to AGI certain deductions,
credits, and exclusions that are allowed in computing the taxpayer’s regular
tax. After adding back these items to income, the taxpayer is allowed an AMT
exemption that varies by filing status (and phases out if the taxpayer’s income
exceeds certain levels). The result is the taxpayer’s alternative minimum
taxable income (AMTI). The AMT rates are then applied to the specially
calculated alternative minimum taxable income (AMTI) to determine the
taxpayer’s tentative minimum tax. The AMT rates are 26% up to a certain
amount of AMTI which varies based on filing status, and 28% on AMTI in
excess of that amount. The amount of the AMT is the excess (if any) of the
tentative minimum tax over the regular tax. Click here to go to a more
detailed explanation of how the AMT is calculated.

Why Did Congress Create the Alternative Minimum Tax?

In the 1960s, studies by the Treasury Department showed that some high-
income taxpayers were through legal tax planning able to either greatly
reduce the amount of tax they paid or pay no tax at all. Congress became
concerned that the fact that these taxpayers were through legal methods able
to pay an effective tax rate that was much lower than other taxpayers with
lower taxable income was incompatible with the progressive nature of the tax
system, under which a larger portion of the overall tax burden is intended to
be shouldered by taxpayers with higher incomes. Congress was also
concerned that the appearance that high income taxpayers were favored
under the tax system undermined the public’s faith in the system. To address
these concerns, the original alternative minimum tax provisions were added to
the tax code to make sure that all high-income taxpayers would have to pay a
minimum amount of tax.

Because high income taxpayers were largely able to reduce their tax liabilities
to unacceptable levels through the use of certain deductions, credits, and
exclusions, the AMT focuses primarily on eliminating the benefit of these
items to high income taxpayers. Since 1969, the alternative minimum tax
system has undergone significant changes, but the focus of the system has
remained on eliminating tax benefits that can be legally but unfairly (in the
eyes of Congress and the IRS) manipulated by high-income taxpayers. The
AMT rules have been repeatedly modified throughout the years because they
have been found to be ineffective in achieving the objective of making all high
income taxpayers pay a minimum amount of tax. Despite these changes, the
AMT continues to be fairly ineffective in producing the results that Congress
intended the AMT to create.

Although there have been many proposals put forth in recent years to either
eliminate or reform the alternative minimum tax system, it is unlikely, largely
for political reasons, that any substantive changes will be made in the near
future. This situation may change as more taxpayers become subject to the
AMT and these taxpayers begin to exert more political pressure on their
elected representatives. However, because there is no guarantee that
meaningful changes to the AMT are coming soon, taxpayers who are
potentially subject to the AMT are well advised to consult with a tax advisor to
see what they can do to avoid becoming subject to it.