Income Tax Chapter 8: Alternative Minimum Tax Flashcards
% depletion is an AMT preference item but ____ _________ is not.
Cost depletion
_______ ________ ____ ________ is an AMT preference item, but interest on public purpose municipal bonds is not.
Private activity bond interest
What are you doing to AMT preference items?
Adding them back; IPOD
Are public purpose municipal bonds preference items?
No; private municipal bond interest is an AMT preference item
How can you decrease your AMT?
increase your “normal” income tax liability; exercise nonqualified ISOs, public purpose muni bonds instead of private, defer payment of property taxes, state income taxes, deductible medical expenses, charitable giving (reduce itemizable deductions)
IPOD (preference items)
I - Excess Intangible drilling costs (IDC)
P - Private-activity municipal bond
O - Oil and gas percentage depletion
D - Depreciation (ACRS/MACRS) - but not straight line
What was deductible for the 1040 but not AMT? What deductions do you have to add back?
Property, state, city income and sales taxes (limited to $10k/year)
Incentive stock option bargain element (qualified) - The excess of the FMV at the exercise date over the option price
How could you increase taxable income through stock options?
Deferring the exercise of an ISO or disqualifying the ISO so it becomes a nonqualified stock option
What don’t you add back for the calculation for the AMT?
- Medical expenses
- Qualified residence interest
- Investment interest
- Charitable deductions
- Casualty and gambling losses
Potentially triggering AMT Recipe
- Itemizing
- AMT preference or add-back items
Is property tax an adjustment to the AMT?
Yes
Why is it difficult to trigger AMT when you get well into the 37% tax bracket?
Your regular tax rate is 37% vs. the maximum AMT rate of 28%.
What should you ask yourself when determining how to reduce AMT exposure?
Does this increase ordinary income? Is it a preference item or adjustment that would have to be added back?
