Alternative Minimum Tax

Question 1

alternative minimum tax

Answer 1

a comparison of the regular tax to see if you have paid in enough. It dis-allows certain deductions in order to compare the tax liability w/o the deductions. it is a penalty tax and is the difference between the tentative tax liability and the regular tax liability. the rate of AMT is either 26% tax rate or a 28% tax rate.

Question 2

what are the adjustments to gross income for individuals?

Answer 2

Interest (student loan interest deduction)
Employment taxes (self employment only)
Moving Expense
Business Expense
Rents, Royalties & 
Alimony
Casualty and Theft
Education tuition and fees
Duty Jury

these are all adjustments to arrive at AGI

Question 3

under AMT tax penalty these are disallowed

Answer 3

• *standard deductions are added back to regular taxable income
• *personal/dependency exemptions are added back to regular taxable income
• *Interest on the EQUITY LINE OF CREDIT so its just on the interest on the $100,000.00 limit not the million dollar limit that you lose the deduction for unless it was used to improve/repair your main home.
• *medical expenses
• *local and state taxes
• *employee business expenses subject to the 2% of agi, you lose that as well when computing the AMT
• *private activity bond interest-type of municipal bond used to build things like an airport or housing. this interest gets added back
• *incentive stock options
• *excess depreciation on personal property 150 declining balance over double declining balance. so the difference between the two are added back.

Question 4

AMT for corporations

Answer 4

start with Taxable income
+ or - private activity bond interest
+ or - installment sales of inventory (this is switched to what the revenue would be under the accrual method which is when the revenue is earned. installment method is only booking the revenue when it is actually received and the irs wants to know what revenue was earned when calculating the alternative minimum tax due
+ or - construction contracts. if you recognized revenue under the completed contract method you have to go back and recognize the revenue under the % of completion method.
+ or - excess depreciation and it is the the difference between using double declining balance (which is twice the straight line method of depreciation) and 150 declining balance which would be one & half times the straight line rate

This will give you the AMT BEFORE ACE ADJUSTMENT

It is rogers mnemonic P-I-L-E

Next is the ACE adjustment when figuring the AMT. It states that you will add in 75% of the the following:

**70% of dividend received deduction. you add in 75% of that amount

**Life insurance proceeds if the corporation is the beneficiary then 75% of life insurance proceeds will be added back

**municipal bond interest even though it is NOT taxable, 75% of the municipal bond interest is added back.