Alternative Minimum Tax (AMT)

Tax laws provide benefits for certain kinds of income and allow special deductions and credits for certain kinds of expenses. The alternative minimum tax (AMT) attempts to ensure that anyone who benefits from these tax advantages pays at least a minimum amount of tax. The AMT is a separate tax formula that eliminates many deductions and credits, thus increasing tax liability for an individual who would otherwise pay less. If your taxable income for regular tax purposes, plus any adjustments and preference items, is more than the AMT exemption amount, you must calculate tax using both the AMT and regular tax formulas and pay the higher of the two amounts.

The Tax Cuts and Jobs Act of 2017 increased the AMT exemption amounts and raised the phase-out thresholds. It also permanently indexed the exemptions for inflation. Today, the AMT will primarily effect high-income households, as it was originally intended. The following may increase your risk of triggering the AMT:

  • High income
  • Interest income from private activity bonds
  • Large capital gain
  • The exercising of Incentive Stock Options (ISOs)
  • Claiming the standard deduction.

Under the AMT, individuals are taxed at rates of 26% and 28% on the amount of taxable income above the exemption amounts. In 2021, the exemption amounts are $73,600 for single filers, $114,600 for married couples filing jointly, and $57,300 for married couples filing separately. Consult with us to determine if the AMT will affect you.

Tax Tip

You can increase your chance of avoiding or reducing the AMT by monitoring your tax situation and planning your income and deductions accordingly.