Thursday, December 26, 2013

The Alternative Minimum Tax and Your Tax Return

What in the world is the Alternative Minimum Tax (AMT)?  Even the IRS does not try to explain it in detail for the lay person.  Basically, it is an attempt by the government to make sure individuals and corporations that benefit from certain exclusions, deductions, or credits pay at least a minimum amount of tax.  It is crazy because the Alternative Minimum Tax requires your taxes be calculated twice in two different ways to make sure someone does not benefit too much from the tax provisions.

How is the Alternative Minimum Tax computed?

According to the IRS the following is the general calculation:
  1. Start with taxable income for regular tax purposes
  2. Eliminate or reduce certain exclusions, deductions and credits that are allowed in computing the regular tax
  3. Subtracting the AMT exemption amount (it's calculation would require another post)
  4. Subtracting AMT foreign tax credit
The IRS notes the AMT exemption amount and AMT rate are set by law.  For capital gains and certain dividends, the rates used for AMT are the same as the regular tax rates.

How do you really figure out the AMT?

You figure out if you owe the AMT and how much it is the old fashion way, by filling out the form 6251.  In reality the AMT primarily "kicks in" once your income gets up to $50,000.  But even if you don't owe it this year there are several ongoing calculations that you need to keep track of year by year like the AMT foreign tax credit, the AMT Depreciation, and the AMT Net Operating Loss Carry-forward or Carry-back just to name a few. 

Two expressions come to mind to describe the AMT: 

  • "It's complicated"
  • "It depends on facts and circumstances"
For more information see the IRS instructions for 
This IS a crazy and complex tax matter that I would be happy to assist you with as your CPA.  I would also be happy to discuss different strategies for this situation with you.

Jeff Haywood, CPA
The CPA Superhero
The above information is general information and is not all inclusive and as always in your tax situation everything "depends on facts and circumstances."  So call me to talk about your specific facts and circumstances.