Individual Taxation - AMT

Question 1

AMT concept

Answer 1

method of computing tax liability to ensure everyone with income pays a minimum amount of tax.

Question 2

AMT is mandatory if

Answer 2

“TMT” exceeds Regular Tax

Question 3

RIT

Answer 3

Gross Income
\+/- Adjustments
=     AGI
(-) Standard or Itemized Deductions
(-) Net Exemptions)
=   Regular Taxable Income
X     Tax Rate
=   Regular Income Tax

Question 4

AMT

Answer 4

Regular Taxable Income
\+/- AMT Adjustments
\+    Preferences
 =   AMT Income “AMTI”
(-)  Exemption Amount
=    AMTI Base
X     AMT Tax Rate
=     TMT 
(-) Regular Income Tax
=    AMT (if positive)

Question 5

AMT Adjustments

Answer 5

Standard Deduction Not allowed

Interest – Mortgage loan interest not deductible for Home Equity Loans or not used to Build, Buy, or Improve

Medical Expense must exceed 10% of AGI (expenses under 10% can’t reduce AMTI) Any age

Personal and Dependent Exemptions Not Deductible

Local and State Tax, ALL Property Tax Not Deductible

Employee Business Expense, Investment Expense, Tax Preparation (BIT) 2% threshold are NOT deductible

(Other Misc. Deductions not subject to 2% of AGI rate are deductible)
o Gambling loss
o IRD

Question 6

AMT Preferences

affecting certain high income individuals

Answer 6

Private activity Bond Interest - used to finance nongovernmental activities, such as
• Industrial development
• Student loans and
• Low income housing.
• Interest is not a preference item if bonds were issued in 2009 or 2010

Incentive Stock Options
• Taxed when exercised for the difference between exercise price and FMV of the stock
• Regularly, ISO’s aren’t taxed until they are SOLD… AMT purposes, taxed when EXERCISED

Excess Depreciation on Personal Property over 150% declining balance when DDB was used for Reg. Tax

Question 7

AMT Preferences always

Answer 7

Always increase AMTI; Mostly a Business Expense item; On many returns, you won’t see preferences

Question 8

AMT Tax Rates

Answer 8

o 26% on first 179,500

o 28% on amount greater than 179,500

Question 9

AMT Credits

Answer 9

AMT Credits can offset AMTI for that year.

Carryforward/refund Only offset future Regular Taxable Liability, Not offset future AMT

If Future Regular Tax > TMT = get a credit for past AMT paid “timing difference”

Carryforward indefinitely

Question 10

Be aware Congress constantly changes AMT Exemption amounts for Individual Taxation.

Answer 10

Congress Usually doesn’t change Corporate AMT, so more likely to be tested.