Answers to All Your Alternative Minimum Tax Questions
Have a question about Alternative Minimum Tax (AMT) law?
Need assistance preparing an AMT form?
Get the answers and the help you need from a Tax Attorney \ C.P.A. !
The alternative minimum tax is one of the most complex areas in federal income taxation. If you are one of the many taxpayers who became subject to the AMT for the first time this year, or someone for whom the AMT is a continuing reality, you probably have questions about the AMT. If you are like the average taxpayer, however, you either don't know where to look for the answers, don't have the information resources that contain the answers, or just don't want to look for the answers on your own. Whatever the reason, if you want your question about the AMT answered for you by a tax attorney/C.P.A., for a price you can afford, the AMT Advisor is for you! Click here for instructions on how to submit a question to the AMT Advisor, or scroll down to learn more about what the AMT Advisor can do for you.
The AMT Advisor offers:
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 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 also a licensed C.P.A., able to answer your questions about form preparation, the calculation of specific items, and other tax accounting issues.
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.
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 for a more detailed explanation of how to calculate the AMT.
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.
Married Filing Jointly or Qualifying Widower- $62,550
Married Filing Separately- $31,275
AMT Exemption Phase-Out Thresholds:
The AMT exemption is reduced by 25% of the amount that alternative minimum taxable income exceeds:
Single and Head of Household - $112,500
Married Filing Jointly and Qualifying Widower - $150,000
Married Filing Separately- $75,000
AMT Exemption for Children Under 18 or Under 14 for Years Before 2006 (Kiddie AMT)
For 2003
The lesser of $40,250 or the child's earned income plus $5,600
For 2004
The lesser of $40,250 or the child's earned income plus $5,750
For 2005
The lesser of $40,250 or the child's earned income plus $5,850
For 2006
The lesser of $42,500 or the child's earned income plus $6,050
