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Alternative Minimum Tax (AMT)

What is alternative minimum tax?

The tax laws gives special treatment to some types of income, allow special deductions for some types of expenses, and allow credits for certain taxpayers. These laws enable some taxpayers with substantial economic income to significantly reduce their regular tax.

Some common reasons for having to pay the Alternative Minimum Tax or AMT include:

  • having a large number of exemptions,

     

  • having a large amount of employee business expenses,

     

  • having a high state income tax deduction and

     

  • exercising incentive stock options.
What is the purpose of alternative minimum tax AMT?

The alternative minimum tax ensures that these taxpayers pay at least a minimum amount of tax on their economic income. In other words, it is designed to prevent you from not paying your fair share of taxes due to excessive use of certain tax breaks. The tax uses a separate method with its own unique rules. Reducing the allowable itemized deductions and computing depreciation differently are examples.

Which to pay, regular tax or alternative minimum tax (AMT)?

If the alternative minimum tax or AMT results in a higher tax than the regular tax calculation, you are liable for the higher amount.

Alternative minimum tax or AMT forms

The alternative minimum tax or AMT is figured by using IRS tax Form 6251, Alternative Minimum Tax- Individuals. The amount of the alternative minimum tax or AMT is entered on line 45 of Form 1040.

You may have to pay the alternative minimum tax or AMT if your taxable inocme for regular tax purposes combined with certain adjustments and tax preference items is more than:

 

$62,550 Married filing jointly or Qualifying Widow(er)
$42,500 Single or Head of Household
$31,275 Married filing separately


There is a worksheet that you can use to determine whether you should complete Form 6251.


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