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Alternative Minimum Tax (AMT)

On December 22, 2017, The Tax Cuts and Jobs Act was signed into law. The information in this article predates the tax reform legislation and may not apply to tax returns starting in the 2018 tax year. You may wish to speak to your tax advisor about the latest tax law. This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.

Alternative Minimum Tax (AMT)
A different way of computing one’s tax liability; it MUST be used if the resulting tax is higher than the tax computed by the regular method. This alternate way of computing the tax was introduced over three decades ago to prevent higher income taxpayers from reducing or escaping income tax. The AMT is structured to ignore the use of certain tax breaks and deductions and to apply special rates - 26% and 28%. Inflation over the years has slowly increased the number of taxpayers who are subject to the AMT. Although the factors affecting the AMT are too numerous to delineate here, the ones most frequently encountered by the average taxpayer include:
  • Taxes, including property taxes and state income tax, are not allowed as an AMT itemized deduction. 
  • Miscellaneous itemized deductions, including job-related and investment expenses, are not deductible for AMT purposes. 
  • The difference between the current market value and the exercise price of stock acquired through an Incentive Stock Option (ISOs) is added to income even though the stock has not been sold. 
  • Interest on home equity debt is not allowed as an AMT itemized deduction.

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