of the Alternative Minimum Tax
taxpayers will find themselves paying more income this year because of
the Alternative Minimum Tax (AMT). This odd sounding tax was originally
enacted in 1969 to force high income taxpayers to pay a minimum amount
of tax even if they used various types of tax shelters available at that
One commentator said
that the tax was aimed at 155 families with income over $200,000 that
paid little or no tax. Over the past 40 years, the AMT has been changed
some, but it is now estimated that over 2½ million taxpayers are
subject to the AMT.
What is the AMT?
The actual mechanics of the AMT can be complicated. In essence, after
your regular tax is calculated, you do another tax calculation with adjustments
to various income levels, itemized deduction and personal exemption amounts
and use the AMT tax rates of 26% to 28%. If the AMT calculation results
in a higher tax, the difference is added to your regular income tax. That
"add-on" is referred to as the alternative minimum tax.
What triggers the
The answers lie in the adjustments that are made and the relationship
between the AMT tax rates and your normal income tax bracket rates. Here
is a brief description of some of the adjustments.
The primary adjustment
to your income can come from the exercise of incentive stock options.
Any difference between the exercise price and the fair market value on
the date of exercise is added to your income for AMT purposes.
The itemized deductions
that must be "added back" include most state and local income
taxes and property taxes. Personal exemption amounts used to reduce your
regular taxable income are not available for AMT purposes. Several other
less common items can trigger the AMT as well.
The AMT exemption
for 2018 is $109,400 for couples and $70,300 for individuals. These exemption
amounts will be indexed for inflation in future years.
This article is a
very general discussion of the AMT. Everyone's tax situation is different
and deserves focused attention. If you think you may be subject to the
AMT, or if you are not comfortable with your understanding of the tax
laws, consult a qualified tax professional to get the advice you and your