Alternative Minimum Tax (AMT)
What is the alternative least tax (AMT)?
The alternative least tax, or AMT, is an alternate, yet parallel, method to work out a taxpayer's bill. It applies to individuals whose income surpasses a certain level and is expected to close the escape clauses that permit them to reduce or dispense with their tax payments. It's adjusted every year for inflation.
How the AMT functions
The AMT has its own set of rates (26 percent and 28 percent) and requires a separate calculation from normal federal income tax. Essentially, it's the difference between your standard tax bill, in view of ordinary income tax rates, and your, not entirely set in stone by finishing IRS Form 6251: Alternative Minimum Tax — Individuals. At the point when there's a difference, you might need to pay the AMT amount notwithstanding your normal tax.
The AMT expands the amount of income that is taxed for high earners. It adds things that are not taxed on the standard tax rates and rejects or reduces numerous common tax breaks utilized by individual taxpayers to bring down their IRS bills.
AMT exemption amounts for 2020-2021
To be required to pay the AMT, you must have earned more than the base level in the chart below.
|Filing status||2o21 AMT exemption||2o20 AMT exemption|
|Single or head of household||Up to $73,600||Up to $72,900|
|Married, filing separately||Up to $57,300||Up to $56,700|
|Married, filing jointly||Up to $114,600||Up to $113,400|
|Filing status||2021 AMT tax rate income level||2020 AMT tax rate income level|
|Single or head of household||$199,900||$197,900|
|Married, filing separately||$99,950||$98,950|
|Married, filing jointly||$199,900||$197,900|
|Filing status||2021 AMT phaseout threshold||2020 AMT phaseout threshold|
|Single or head of household||$523,600||$518,400|
|Married, filing separately||$523,600||$518,400|
|Married, filing jointly||$1,047,200||$1,036,800|
Extra tax breaks not permitted under the AMT that influence overwhelmingly high-income individuals are:
- Incentive stock options.
- Immaterial drilling costs.
- Tax-exempt interest from certain private activity bonds.
- Depletion and accelerated depreciation on certain leased personal or real property.
Deciding your financial liability because of the AMT can be muddled. Tax software programs or a tax professional might be the best method for figuring out what you owe. When you complete the current year's tax return, look for the guidance of an accountant or tax professional to track down approaches to possibly reduce your tax liability proceeding.
- It doesn't kick in until income arrives at a certain level. For 2022, it's $118,100 for couples filing jointly.
- In 2012, Congress passed the American Taxpayer Relief Act of 2012 that indexed the exemption amount to inflation to keep middle-income taxpayers from encountering bracket creep.
- AMT guarantees that certain taxpayers pay their fair share or possibly the base.