Years of Inflation and the AMT Pose a Growing Tax Threat
Your tax will be the higher of the tax computed the regular way or the Alternative Minimum Tax. Anticipating when the AMT will affect you is difficult, because it is usually the result of a combination of circumstances. In addition to those items listed above, watch out for transactions involving limited partnerships, depreciation and business tax credits only allowed against the regular tax. All of these can strongly impact your bottom line tax and raise a question of possible AMT.
Tax Tip: If you were subject to the AMT in the prior year and had a state tax refund in that year, part or all of your state income tax refund from that year may not be includable in the regular tax computation. To the extent you received no tax benefit from the state tax deduction because of the AMT, that portion of the refund is not includable in the subsequent year’s income.
Congress has procrastinated for several years on AMT reform. Each year, they temporarily increase the exemption amount for inflation, leaving taxpayers in doubt about the future years. Without these annual patches, the IRS estimates that an additional 14% of the nation’s taxpayers will be affected by the AMT and hit with an unexpected tax increase. For 2009, Congress again patched the AMT with increased exemption amounts as shown in the table below. We will have to wait and see what happens for 2010.
AMT EXEMPTION PHASE OUT
|
Filing Status
|
Exemption Amount
|
Income Where
Exemption Is
Totally Phased Out
|
| Married Filing Jointly |
$70,950
|
$330,000
|
| Married Filing Separate |
$35,475
|
$165,000
|
| Unmarried |
$46,700
|
$247,500
|
AMT TAX RATES
|
AMT Taxable Income
0 – 175,000(1)
Over 175,000(1)
|
Tax Rate
26%
28%
|
(1) $87,500 for married taxpayers filing separately
Anticipating when the AMT will affect you is difficult, because it is usually the result of a combination of circumstances. In addition to those items listed above, watch for transactions involving incentive stock options, limited partnerships, and tax-free income from private activity bonds, depreciation, and tax credits. All of these can strongly impact your bottom line tax and raise a question of possible AMT.