Alternative Minimum Tax

Alternative minimum tax ensures that those with high income by ensuring they pay at least a minimum amount of tax. It prevents high net worth tax payers from over utilizing certain tax benefits to greatly limit their tax liability. In this article, we will go over the alternative minimum tax.

How AMT is Calculated

You must calculate tax liability twice. Once under the ordinary income tax and once under alternative minimum tax. You must pay whichever tax amount is the highest. AMT requires you to put certain deductions back into your income. AMT does come with an exemption. It is $88,100 for a single individual and $137,000 for married couples. However, these exemptions begin to phase out if your income is over $626,350 for a single person and $1,252,700 for a married couple. To determine your AMT you must calculate your alternative minimum taxable income (AMTI) and apply the exemption. You must pay 26% on AMTI below $197,900and 28% on funds above that amount. In 2017 approximately 5 million taxpayers paid AMT.

Why Was AMT Created

Alternative minimum tax was enacted in 1967. It was set up to keep wealthy tax payers from paying very minimal to zero dollar in tax. AMT tried to limit the number of eligible exemptions you can claim, increasing the amount that is subject to income tax.

Do You Owe Alternative Minimum Tax

First you need to calculate your regular tax liability. Then you need to use IRS form 6251 to calculate your AMT. If AMT is higher than ordinary income, you will have to pay it in addition to your regular income tax.

Filing AMT

If you think you could be subject to AMT, meet with a qualified tax preparer to help you calculate your total tax liability.

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