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Understanding Alternative Minimum Tax (AMT) - A Comprehensive Guide

Learn about the Alternative Minimum Tax (AMT) and its implications for taxpayers. Discover how to calculate AMT, the adjustments and preferences it entails, and the AMT exemption and credits available.

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Understanding Alternative Minimum Tax (AMT) - A Comprehensive Guide

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  1. Chapter 07Individual AMT.Howard Godfrey, Ph.D., CPAUNC Charlotte

  2. Alternative Minimum Tax (AMT) The alternative minimum tax is designed to impose a minimum amount of tax that a taxpayer must pay. Taxpayer must pay at least the minimum amount of tax Figured separately from regular income tax Requires keeping a separate records

  3. Alternative Minimum Tax • IF AMT is greater than the regular tax, taxpayers pay the larger amount • Rate is 26% on first $175,000 and 28% on excess for individuals

  4. AMT Adjustments Purpose is to account for effect of special alternative rates or calculations Most reverse due to timing differences Examples: Required use of completed contract method No gain deferral for installment sales Recalculation of NOL; limited NOL deduction Depreciation under ADS versus MACRS Individuals must limit itemized deductions, delete personal exemption, report income from ISOs

  5. AMT Preferences Apply to all taxpayers Always added in the computation of AMTI Are permanent differences and do not reverse Add back: Percentage depletion in excess of basis Limitation of intangible drilling costs Tax-exempt interest from private activity bonds Excess depreciation over straight-line for property acquired before 1987 Part of gain exclusion on small business stock

  6. AMT Exemptions Designed to eliminate taxpayers with relatively moderate income and small amounts of adjustments and/or preferences Phased-out at rate of 25 cents for every dollar of AMTI over base Entity Initial exemption-2011 Base Corporation $40,000 $150,000 Married, joint 74,450 150,000 Single & H-of-H 48,450 112,500 Married, separate 37,225 75,000

  7. AMT Minimum Tax Credit Calculated each year in which AMT applies Designed to avoid double jeopardy caused by timing differences Deducted from regular tax Amount is the difference between actual AMT and what AMT would be without the reversal adjustments

  8. Scott and Sandy had alternative minimum taxable income of $200,000 in 2011, and file a joint return. For purposes of computing the alternative minimum tax, their AMT exemption is:

  9. The End

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