Will the AMT Zap You?

Feb 14, 2014 by

alternative minimum taxI don’t recall and I’m too lazy to research the genesis of the Alternative Minimum Tax (AMT), but I’m sure once upon a time the media reported with great horror how a few rich guys were paying no income tax because they’d hired people clever enough to reduce their taxable income to nothing. “This is not right!” our esteemed Congress no doubt exclaimed in collective mock horror. And so the AMT was born. Since then the AMT has morphed into just another politicians’ hand in your pocket as more and more people are caught in its web, many of whom never realized they were in the “rich guy” category the original AMT was conceived to zap. And that, my friends, is why you may now be subject to the Alternative Minimum Tax.

Alternative Minimum Tax Primer

According to the IRS, the Alternative Minimum Tax “attempts to ensure that individuals and corporations that benefit from certain exclusions, deductions, or credits pay at least a minimum amount of tax.”

I love the way the IRS writers put things, so I just have to repeat this here, lifted from the IRS’ website, for your enjoyment.

The AMT is the excess of the tentative minimum tax over the regular tax. Thus, the AMT is owed only if the tentative minimum tax is greater than the regular tax. The tentative minimum tax is figured separately from the regular tax. In general, the tentative minimum tax is computed by (1) computing taxable income eliminating or reducing certain exclusions and deductions, and taking into account differences with respect to when certain items are taken into account in computing regular taxable income and alternative minimum taxable income (AMTI), (2) subtracting the AMT exemption amount, (3) multiplying the amount computed in (2) by the appropriate AMT tax rates, and (4) subtracting the AMT foreign tax credit. The AMT exemption amounts and AMT tax rates are set by law. For net capital gains and certain dividends, the special capital gain rates in effect for the regular tax are used if they are lower than the AMT tax rates that would otherwise apply. In addition, some tax credits allowed in reducing regular tax liability are not allowed in reducing AMT liability.

I’m no Hemingway, but I must say those may be among the most useless and unintelligible 178 words ever assembled into a paragraph. My understanding of the AMT is exactly the same before and after reading the above. I truly wonder whether IRS writers gather somewhere and write this stuff while swilling booze and guffawing over visions of the hapless taxpayer futilely reading and re-reading their masterworks. I really, really wonder, the IRS’ written words are so uniquely bad.

Will You Be Subject to the AMT?

Anywho, moving on from the topic of IRS wordsmithing to the real question: will you be victimized by the AMT?

I dare you to try it, but to help answer this question the IRS provides an allegedly handy AMT Assistant. If you’re pretty good at code breaking, perhaps you can successfully work your way through the AMT Assistant’s interrogation. But, as the IRS warns, “Remember the answer you get is only as accurate as the data you enter!”

More generally, you may have to pay the AMT “if your taxable income, plus certain [unspecified] adjustments, is more than the AMT exemption amount for your filing status.” So here’s one semi-concrete takeaway for you: if your income is below the exemptions noted below for your filing status, you usually will not owe AMT.

  • Single and Head of Household: $51,900
  • Married Filing Joint and Qualifying Widow(er): $80,800
  • Married Filing Separate: $40,400

If your income is above the exemption amount for your filing status, the AMT may be in your future. But—and I’m sure you won’t be shocked by this—there’s no easy way to know. You’ve just got to do a tax return (or pay someone to do it for you), and somewhere along your journey you’ll learn whether you’re subject to the AMT.

Have You Been Zapped by the AMT?

Have you ever had to pay the Alternative Minimum Tax? Are you expecting you could get zapped by it in 2013? Don’t you despise the U.S. tax code?

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