These include state and local income taxes, foreign tax credits, and employee business expenses. The AMT doesn't allow the interest on home equity mortgages unless the loan was used to improve your home. Real estate and personal property taxes are not deductible. Medical expenses are only deductible if they exceed 7. You must also file if you claim the qualified electric vehicle credit Form or the credit for prior year minimum tax Form The AMT also might include other income streams not counted by the regular income tax.
For that reason, the AMT is higher than the regular tax. These other income streams include:. Fortunately, the AMT tax rate is simpler than the regular tax rates. The AMT exemption is much larger than the standard exemption, but it starts to disappear after you reach a certain income level, called the "phaseout. Once your income hits the phaseout level, 25 cents of the exemption disappear for every dollar above the phaseout. The exemption will revert to pre-Tax Act levels in You only have to worry about the AMT if your adjusted gross income exceeds the exemption.
If you make that much income or more, that's the AMT taxable income. You may have to calculate your alternative minimum taxable income and pay the higher tax.
You can do so on Form Your tax software package will do it for you. Once you qualify for the AMT in a tax year, you must pay it, but you can adjust your spending to reduce the AMT for the following year. There are four common methods:.
The AMT does not affect everyone above the qualifying income thresholds. But even in that bracket, only Here was the breakout for the tax year , according to the Tax Policy Center:. The AMT is more likely to snare married taxpayers with children for several reasons. First, they often have higher incomes, especially if both parents are working. Second, the AMT does not have additional exemptions for each household member.
Third, there is no " marriage bonus " under the AMT. In , Congress created a simplified version of the Alternative Minimum Tax , which was originally known as the "millionaires' tax. In , the Internal Revenue Service discovered that millionaires paid no taxes, because they used deductions that were not available to the average worker.
The Reagan administration created today's AMT to include more widespread exemptions and deductions. Congress applied a higher tax rate on incomes that reached a certain level. It added the personal exemption, state and local taxes, and the standard deduction.
It even targeted deductions like union dues and some medical costs. Other items create timing differences, such as depreciation differences between the two tax systems, and the phantom income from exercising incentive stock options.
These items can generate a credit on Form and reduce your taxes in future years. Other portions of Line 2 are deferral items. An AMT credit may be generated based on the reversal of the timing difference of these items. For example, AMT depreciation methods may be slower than those for the regular tax, but you will eventually receive the same deduction. Remember, with TurboTax , we'll ask you simple questions about your life and help you fill out all the right tax forms.
Whether you have a simple or complex tax situation, we've got you covered. Feel confident doing your own taxes. Just answer simple questions about your life, and TurboTax Free Edition will take care of the rest. For Simple Tax Returns Only. Tax Exemptions and Deductions for Families. What are Tax Exemptions? Is Social Security Disability Taxable? Estimate your tax refund and where you stand Get started.
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The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Skip To Main Content. Why does the AMT exist? What is the Alternative Minimum Tax? Why would I have to pay the AMT?
How can I avoid the AMT? What happens to my tax credits? How can I plan ahead for the AMT? What are the AMT exemption amounts?
The AMT exemption amounts are now indexed to rise with inflation. To figure out whether you owe any additional tax under the Alternative Minimum Tax system, you need to fill out Form If the tax calculated on Form is higher than that calculated on your regular tax return, you have to pay the difference as AMT in addition to the regularly calculated income tax.
It can result in you paying hundreds or even thousands of dollars in additional taxes. Look for entries on lines 2 and 3, which adjust your taxable income for AMT purposes.
For instance, you have to put various items back into your income, adding such items as your standard deduction, taxes deducted on Schedule A, the bargain element of any incentive stock options you exercised, as well as several investment related items. How can I escape the AMT? Perhaps you can qualify for a home office, which would allow you to deduct part of your home real estate tax on Schedule C. If you have a farm operation and use your car in your work, you might be able to deduct the personal property tax on the car on Schedule F.
If you have vacant land on which you are paying real estate taxes, you could turn it into a farm rental and deduct the taxes on Form The difference, if positive, is the Alternative Minimum Tax.
You add the positive difference, if any, to the your regular tax. If you have any of these credits, usually from a business entity or an investment, you should analyze Line 2 of Form to see what you can do to reduce your Tentative Minimum Tax and allow more credits. Any general business credit not allowed generally may be carried back 2 years and carried forward 20 years. There are some things you can do to plan ahead for the Alternative Minimum Tax: Use tax-planning software such as TurboTax during the year to minimize your overall tax liability.
Study Form each time you prepare your tax return to see how close you are to paying the AMT. Evaluate how close your Tentative Minimum Tax was to your regular tax. Use precise geolocation data. Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile.
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Your Practice. Popular Courses. Personal Finance Taxes. Key Takeaways The alternative minimum tax AMT ensures that certain taxpayers pay their fair share of income taxes. However, the structure was not indexed to inflation or tax cuts. This can cause bracket creep, a condition in which upper-middle-income taxpayers are subject to this tax instead of just the wealthy taxpayers for whom AMT was invented. For those subject to AMT, there are certain strategies that can be employed to reduce your exposure to this tax.
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