Do You Need To Think About The Alternative Minimum Tax?

Image of floral shop owner calculating her alternative minimum tax exemption on tablet

You may not have thought much about the alternative minimum tax, or AMT, since Congress passed a law that permanently fixed the exemption.

But the tax, which you calculate separately from your regular tax liability, is still around. Here’s how the AMT might apply to your tax return.

To calculate your AMT taxable income, you add or subtract certain income and deductions, known as preference items, from the income shown on your federal income tax return.

For example, you exclude certain bond interest from your regular taxable income. You must include it when computing income for the alternative minimum tax. This is a preference item because tax-exempt interest gets preferential treatment under ordinary federal income tax rules.

AMT adjustments¬†also affect whether you’ll owe the tax. These include personal exemptions and your standard deduction.

In the AMT calculation, these taxable-income reducers aren’t deductible. Instead, they’re replaced with one flat exemption, which is generally the amount of income you can exclude from the AMT.

For 2018 returns, the AMT exemption is $109,400 for taxpayers who are married filing jointly or a surviving spouse. It’s $70,300 when you’re a single filer. Once your income reaches a certain level, the exemption decreases.

Finally, only some itemized deductions, such as charitable contributions, are allowed in the AMT calculation. Others, including medical expenses and mortgage interest, are computed using less favorable rules.

 

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