Everything You Need to Know About Alternative Minimum Tax 2018
Did you know that when you lot reach a certain level of income a parallel revenue enhancement system may apply to your taxes? This separate tax structure, called the alternative minimum taxation (AMT), catches some taxpayers by surprise and, frankly, it can be confusing. In addition, recent revenue enhancement laws have made information technology less common to take by taxpayers.
Notwithstanding, if yous're encountering the alternative minimum tax for the kickoff time, you'll want to sympathise the basics as it might be benign to yous. In this post, we'll outline the essentials – including why the AMT exists and if you lot are exempt from information technology.
What is AMT?
Let'due south start by answering, "what is AMT?" As the name suggests, the AMT is a unlike way of computing income taxes. Different, that is, from the "regular" fashion of computing tax.
At a high level, here's the deal: if you're subject to the AMT, y'all end up calculating your taxes using ii methods. If the AMT method results in a higher revenue enhancement bill, you'll pay the college tax.
The AMT likewise has its own set of rules for income, exemptions, and deductions which we'll cover hither.
History of AMT taxation
The AMT tax began equally a style to keep wealthy taxpayers from using deductions to avoid paying income tax. The AMT's purpose is to ensure every taxpayer pays a minimum amount of tax. The latest changes for the AMT came in 2017 with the Tax Cuts and Jobs Deed (TCJA). Starting in 2018, the TCJA greatly increased AMT exemptions and exemption phaseout thresholds. For instance, the phaseout threshold for a single filer increased from $120,700 in 2017 to $500,000 in 2018, so information technology quadrupled.
(AMT exemptions and phaseout thresholds for 2020 are shown below.)
These and other changes made by the TCJA are in place temporarily through 2025, and truthfully, had the effect of greatly reducing the number of taxpayers who pay AMT. According to IRS statistics, the number of taxpayers who paid AMT dropped from over five million in 2017 to under 250,000 in 2018.
How is AMT calculated?
The AMT starts with regular taxable income and applies its own system of "adjustments" and "preferences." These are calculations that add more income to or remove deductions from regular taxable income to arrive at alternative minimum taxable income (AMTI). In some means, y'all can say that the AMT causes you to "lose" some tax breaks. Next, an AMT exemption is subtracted, and AMT taxation rates are applied to get to tentative minimum tax.
In the AMT parallel tax system, you must:
- Complete your regular tax render.
- Complete AMT Form 6251.
- Compare the two taxes.
- Pay the college of the two taxes.
At that place's no easy way to see if you lot're subject to the AMT. However, you could be subject field to it if you:
- Claim certain itemized deductions on your Schedule A
- Do incentive stock options (ISOs) simply don't sell the stock in the same year
- Have involvement income from certain private activity bonds
Besides, different AMT calculations may utilize to internet operating losses, depreciation, passive activity losses, and many other taxation items.
AMT exemptions
Afterward adjustment and preference items are added or subtracted, y'all're left with culling minimum taxable income, or AMTI. Next you lot use the AMT exemption. Your AMTI and your filing status determine your exemption corporeality. Exemption amounts for 2020 are:
- Married filing jointly or qualified widow(er) — $113,400
- Single or head of household — $72,900
- Married filing separately — $56,700
For 2020, the exemption amounts are phased out at the rate of 25 cents for each $1 of AMT income more than than:
- Married filing jointly or qualified widow(er) — $one,036,800
- Unmarried or head of household — $518,400
- Married filing separately — $518,400
After you lot decrease the exemption amount from AMTI, the remaining income will be subject to the AMT rate. The AMT rate is a flat 26% for income up to $197,900 ($98,950 for married taxpayers filing separate returns). Income more than those amounts is taxed at a rate of 28%. Special calculations apply to capital gains.
As explained earlier, considering of the exemption and phaseout threshold increases, fewer taxpayers end up of paying AMT today, even if some of the preference or adjustment items apply to them.
Cheers to another revenue enhancement law change (the 2019 "SECURE" Act), children who are subject field to the "According to IRS statistics" use the aforementioned AMT exemption equally other taxpayers. Before this change, the exemption amount was much lower than the regular exemption. For instance, the exemption was $7,500 in 2017. That meant children with investment income frequently paid AMT besides equally regular taxation. Children who pay kiddie tax on investment income are far less likely to pay AMT. This alter is effective through 2025.
More aid with Alternative Minimum Tax
Filing taxes can be hard, even considering Alternative Minimum Tax. Luckily, help is at your fingertips.
Whether you brand an appointment with i of our knowledgeable tax pros or choose one of our online tax filing products, H&R Block has many means to support yous as you lot file taxes.
Source: https://www.hrblock.com/tax-center/income/other-income/what-is-alternative-minimum-tax/
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