Barone CPA

What Is Minimum Alternative Tax?

Aside from the regular federal income taxes, there’s also the AMT, or Alternative Minimum Tax, which needs to be calculated, and perhaps paid, by a taxpayer. Find out what is AMT all about — its definition, history and coverage.  You can also contact a Scottsdale CPA firm to give more detail.

A taxpayer has to run two sets of calculations when filing for income taxes: the Form 1040 (the regular income tax calculations) and the Form 6251 (the AMT method). The taxpayer is required to pay whichever amount is higher.

Changes to the AMT took place from the time it was created. One startling change is that today, middle-class families are more affected by the AMT instead of the richer taxpayers that AMT was originally created for.  This is a frustrating thing to keep up with which is why CPA firms are at your service to help explain how this effects the taxpayer.

It is calculated by the amount of a taxpayer’s AMT is the difference between his regular tax amount and his tentative minimum tax calculated using the rules of the AMT. AMT is calculated in a different manner from the regular tax but is still based on the regular federal tax system.

The IRS website offers the ‘AMT assistant’ to see whether a taxpayer is required to pay for the AMT.

Here’s how to estimate the taxpayer’s AMT liability:

Part 1: Regular Taxable Income plus or minus AMT Adj. plus AMT Preference Items minus AMT Exemption = Alternative Min Taxable Income (AMTI)

Part 2: AMTI multiplied by AMT Rates = Tentative Min Tax (before credits)

Part 3: Tentative Min Tax (before credits) minus AMT Foreign Tax Credit = Tentative Min Tax

Part 4: Tentative Min Tax minus Regular Tax = Net Alternative Min Tax

If the ‘Net Alternative Min Tax’ turns out as a positive amount, then this amount will be added to his regular tax (minus relevant non-refundable credits).

Once it’s confirmed that he indeed needs to pay for the AMT, then Form 6251 has to be filled out. That’s when the actual liability will be determined, and that will be the amount the taxpayer is liable to pay for.

Click here or call Barone CPA today to discuss your tax issues.

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