11 Sep How can I tell if I’m subject to AMT?
Q. How can I tell if I will be subject to the Alternative Minimum Tax? Can I do that without an accountant? And if I am, is there a way to get out?
A. The Alternative Minimum Tax, better known as the AMT, was introduced in 1969 as a way to ensure wealthier taxpayers with big deductions and other tax loopholes were not completely able to avoid paying income taxes.
But it doesn’t just affect the wealthy now.
AMT was never adjusted for inflation, so over time more taxpayers became subject to the AMT tax, said Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Berkeley Heights.
“Each year Congress would put a temporary fix in place so even more taxpayers were not ensnared by the AMT,” Maye said. “Finally in 2013, a permanent fix was put in place with
higher AMT exemption levels.”
For 2014, the AMT exemption amounts were $52,800 for individuals and $82,100 for those married filing jointly.
Common triggers of AMT include higher-than-average income, more than two kids and residing in a state with high income taxes, Maye said.
The calculation is a little complicated.
You compute the AMT on a special IRS form (Form 6251) that is attached to your Form 1040, said Gail Rosen, a Martinsville-based certified public accountant. If that form has an additional tax calculated on Line 35, then you that means you are subject to AMT.
“If the tax liability under the AMT system is higher than your regular tax liability, you must pay the higher amount,” Rosen said.
The AMT starts with your regular taxable income and in general, makes you “give back” certain tax preferences and adjustments until you arrive at an “alternative minimum taxable income,” Rosen said. Then after subtracting an exemption amount, a tax rate of 26 percent applies to the first $185,400 in 2015 and 28 percent to amounts above $185,400 — except for long-term capital gain rates — she said.
If you’re worried about AMT, work with a certified public accountant to review your situation and see if there are any tax-saving strategies that will help.
Email your questions to moc.p1566314737leHye1566314737noMJN1566314737@ksA1566314737.
This story was first posted in September 2015.NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.