THERE are two types of income tax – regular tax that you are familiar with, and an Alternative Minimum Tax (AMT) that you may not have encountered. If you had experienced a bout with AMT, you’d not forget it. It hurts like a Pacquiao punch to your gut.
What exactly is AMT?
AMT is a separate tax that was originally drafted in 1969 to make sure that wealthy individuals with tax shelters paid their fair share of taxes. Unfortunately, it has not worked that way. AMT has snared more and more taxpayers like you and me. This AMT burns unsuspecting taxpayers who have second mortgages, high state income tax, high property tax bills, or several dependents. It applied to both corporate and noncorporate taxpayers.
AMT gone rogue:
AMT had unintended consequences both to taxpayers and its computation. Very complex rules applied to the deductibility of minimum tax credits (MTCs). It was a very complicated system that added even more complexity to intricate tax compliance.
Corporate AMT:
The new Act repealed the corporate Alternative Minimum Tax (AMT). Good riddance.
Individual AMT less painful but still here
Sorry guys, The Tax Cuts and Jobs Act (TCJA) did not eliminate AMT for individuals but it did ease our pain by increasing exemption amounts for tax years 2018 through 2025. This makes us less likely to get hit with this dreaded provision.
Exemption increases and higher phaseouts
The TCJA increases the individual AMT exemption amounts for tax years 2018 through 2025 to $109,400 for married filing jointly and surviving spouses; $70,300 for single filers; and $54,700 for marrieds filing separately. These increased exemption amounts are reduced (not below zero) by 25% of the amount of the taxpayer’s alternative taxable income above $1 million for joint returns and surviving spouses, and $500,000 for other taxpayers except estates and trusts. All of these amounts will be indexed for inflation in 2019 and later years under a new measure of inflation that will result in smaller increases than under the method previously used.
AMT for estates and trusts:
The base figure AMT exemption of $22,500 and phase-out threshold of $75,000 remain unchanged for trusts and estates.
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Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation in Pasadena, California.
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He has 50 years of experience in defending taxpayers audited by the IRS, FTB, EDD, BOE and other governmental agencies. He is publishing a book on his expertise – “HOW TO AVOID OR SURVIVE IRS AUDITS.” Our readers may inquire about the book or email tax questions at [email protected].