We've all heard the anecdotes about the folks who have
income rivaling Bill Gates, but paid absolutely no income tax during a given
year. Well, whether those stories were ever true to begin with, the AMT
was Uncle Sam's solution to that seemingly unfair scenario.
The tax is a lot more complicated than we want to get into
for purposes of this discussion, but basically if you have certain deductions
that are subject to the AMT, we must calculate two different tax amounts - your
"regular" income tax and your AMT tax. If the AMT is higher,
then you are required to pay tax under the AMT calculation.
One huge factor in the growing AMT trend has been the state taxes on
stock gains earned since the 2009 recession. Large state tax deductions are an "add
back" item for purposes of the AMT computation. The computation for
AMT begins by taking your taxable income and adding back the deductions and
benefits, such as state and local taxes and miscellaneous itemized
Once your "alternative minimum taxable income"
has been computed, an alternative minimum tax rate depending on your income
level is applied to it. There is an exemption amount that prevents most
people from being subject to the AMT. The exemption acts as a buffer,
allowing a flat amount of deductions in calculating the AMT.
If you have been subject to the AMT in the past and/or
suspect that you may be subject in the future, please give us a call.
There are strategies you can take to lower the amount of AMT you incur.
The earlier you begin planning for an AMT hit, the easier it is to avoid it if