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The alternative minimum tax (AMT) has changed and it will not trap as many people as in the past.
The AMT is perhaps the original stealth fee. When it was created in 1969, it targeted wealthy individuals who used many tax breaks to pay no income tax. But Congress did not adjust the AMT because other parts of the tax code were changed. As a result, the AMT would have trapped many middle class taxpayers, particularly retirees, who would have already paid substantial taxes under the regular income tax. They paid more as part of the AMT.
The AMT is a second tax system. You calculate your regular income tax. Then you also calculate the tax under the AMT by adding to your usual taxable income all the relevant tax breaks, called tax preferences. Taxable income AMT is subject to two tax rates only. A rate of 26% is paid on the first taxable income of the AMT, or $ 191,000, and a rate of 28% on the higher taxable income of the LMO.
The Law on Tax Reduction and Job Creation (TCJA), promulgated in December 2017, significantly changed the law. About 5 million taxpayers were supposed to pay the AMT under the old law, but only 200,000 would have to pay the AMT this year. So few taxpayers will have to AMT that the IRS has announced that it would remove its online AMT Tax Calculator Assistant tool.
Three key changes in the criminal justice law have allowed the AMT to be primarily a tax of a millionaire.
First of all, the exemption of the AMT has been significantly increased. For married taxpayers filing jointly, the exemption is $ 109,400 in 2018. It is $ 70,300 for singles and heads of households and the exemption is $ 54,700 for married taxpayers which deposit separately. These exemptions are $ 84,000, $ 54,300 and $ 42,250, respectively, for 2017.
Second, the income levels at which exemptions are eliminated are much higher. They represent $ 1 million for married couples filing jointly and $ 500,000 for other taxpayers. In 2017, disposal levels were $ 160,900 and $ 120,700, respectively.
Third, many of the tax breaks that triggered the LMO for middle-class taxpayers have been altered. Middle-income taxpayers were frequently subject to the AMT when they had high levels of personal and dependent exemptions, deductions for various detailed expenses, mortgage interest on the equity of the property and state and local tax deductions. Personal exemptions are removed (although dependent exemptions remain), as are detailed detailed expenses and the deduction of interest on the home equity. The state and local tax deduction is limited to $ 10,000 per tax return. Collectively, they are replaced by a much higher standard deduction.
The combination of these changes means that you must have many items of tax preference to trigger the AMT. In the past, the amount of the exemption being so low, an amount slightly above the average of the preferential items would push a taxpayer into the IMR.
A number of articles on tax preferences remain. They will appear on the IRS Form 6251 and its instructions. Incentive stock options remain a key trigger of the AMT for many corporate employees who use them as compensation. Other key preference items are the standard deduction, certain net operating losses, certain types of accelerated depreciation and interest on tax-exempt private activity bonds. A large amount of long-term capital gains can also trigger the TMA, just like having a lot of dependents.
As before, the AMT is so complicated that it is not possible to give general rules about people at risk. The trigger varies depending on your usual tax bracket and the amount of items you have in favor of the tax. The higher your income, the more elements you need to trigger the AMT. In addition, because of some nuances in the interaction between the regular income tax and the AMT, single taxpayers are slightly less likely to trigger the AMT than married taxpayers filing jointly.
You should estimate your taxes back and forth during the year to determine if you can trigger the AMT. Use the results to plan your transactions for the rest of the year.
As with many other provisions of the 2017 Tax Act, amendments to the AMT are expected to expire after 2025.
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The alternative minimum tax (AMT) has changed and it will not trap as many people as in the past.
The AMT is perhaps the original stealth fee. When it was created in 1969, it was aimed at high net worth individuals who used a lot of tax breaks to avoid paying income tax. But Congress did not adjust the AMT because other parts of the tax code were changed. As a result, the AMT would have trapped many middle class taxpayers, particularly retirees, who would have already paid substantial taxes under the regular income tax. They paid more as part of the AMT.
The AMT is a second tax system. You calculate your regular income tax. Then you also calculate the tax under the AMT by adding to your usual taxable income all the relevant tax breaks, called tax preferences. Taxable income AMT is subject to two tax rates only. A rate of 26% is paid on the first taxable income of the AMT, or $ 191,000, and a rate of 28% on the higher taxable income of the LMO.
The Law on Tax Reduction and Job Creation (TCJA), promulgated in December 2017, significantly changed the law. About 5 million taxpayers were supposed to pay the AMT under the old law, but only 200,000 would have to pay the AMT this year. So few taxpayers will have to AMT that the IRS has announced that it would remove its online AMT Tax Calculator Assistant tool.
Three key changes in the criminal justice law have allowed the AMT to be primarily a tax of a millionaire.
First of all, the exemption of the AMT has been significantly increased. For married taxpayers filing jointly, the exemption is $ 109,400 in 2018. It is $ 70,300 for singles and heads of households and the exemption is $ 54,700 for married taxpayers which deposit separately. These exemptions are $ 84,000, $ 54,300 and $ 42,250, respectively, for 2017.
Second, the income levels at which exemptions are eliminated are much higher. They represent $ 1 million for married couples who file together and $ 500,000 for other taxpayers. In 2017, disposal levels were $ 160,900 and $ 120,700, respectively.
Third, many of the tax breaks that triggered the LMO for middle-class taxpayers have been altered. Middle-income taxpayers were frequently subject to the AMT when they had high levels of personal and dependent exemptions, deductions for various detailed expenses, mortgage interest on the equity of the property and state and local tax deductions. Personal exemptions are removed (although dependent exemptions remain), as are detailed detailed expenses and the deduction of interest on the home equity. The state and local tax deduction is limited to $ 10,000 per tax return. Collectively, they are replaced by a much higher standard deduction.
The combination of these changes means that you must have many elements of tax preference to trigger the AMT. In the past, the amount of the exemption being so low, an amount slightly above the average of the preferential items would push a taxpayer into the IMR.
A number of articles on tax preferences remain. They will appear on the IRS Form 6251 and its instructions. Incentive stock options remain a key trigger of the AMT for many corporate employees who use them as compensation. Other key preference items are the standard deduction, certain net operating losses, certain types of accelerated depreciation and interest on tax-exempt private activity bonds. A significant amount of long-term capital gains can also trigger the AMT, as well as a large number of dependents.
As before, the AMT is so complicated that it is not possible to give general rules about people at risk. The trigger varies depending on your usual income tax bracket and the number of tax preference items you have. The higher your income, the more elements you need to trigger the AMT. In addition, because of some nuances in the interaction between the regular income tax and the AMT, single taxpayers are slightly less likely to trigger the AMT than married taxpayers filing jointly.
You must estimate your taxes in both directions during the year to determine if you could trigger the TMA. Use the results to plan your transactions for the rest of the year.
As with many other provisions of the 2017 Tax Act, amendments to the AMT are expected to expire after 2025.
