You may not have heard much about the alternative minimum tax (AMT) since the American Taxpayer Relief Act of 2012. That law established AMT exemption amounts and indexed them to inflation. But the AMT is still around — and still capable of increasing the tax you owe. That’s because AMT rules do not allow for many of the exclusions, deductions and credits available under regular income tax rules. Eliminating these benefits means more of your income is subject to AMT.
For example, say you itemize and deduct certain taxes paid when you calculate your regular income tax liability. State or local income taxes, real estate taxes or personal property taxes are not deductible under AMT rules. Lower deductions equal higher income for AMT purposes.
How do you know if AMT rules apply to you? Potential triggers include large itemized deductions such as taxes as well as certain income, such as the exercise of incentive stock options. Other items can affect your exposure, too. For instance, personal exemptions are disallowed under AMT rules. If you claim many exemptions, you may be subject to the tax.
Work Through The Calculation
Generally, the best way to determine if you owe AMT is to work through the calculation. To do that, you start with your adjusted gross income for regular tax purposes. Next, you adjust for items that are either not allowed for the AMT, or are calculated differently. Then you subtract the AMT exemption. For 2015, the exemption starts at $53,600 when you’re filing single and $83,400 when you’re married filing jointly. (Note: The exemption phases out as your AMT income increases.) Finally, you multiply any remaining amount by AMT rates, which begin at 26%, and compare the result to your ordinary income tax. You pay the higher amount.
AMT applies to your business as well as your personal tax return. In both cases, certain income, exclusions, deductions and credits receive different treatment than they do for regular income tax. You’ll need to perform separate calculations and maintain separate records.
Give us a call at 419.629.3494 for help in determining how the AMT will affect your federal income taxes next year. We can offer planning suggestions and advice to minimize the impact.