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Once
you have prepared your tax return, don’t just sign it and send it to the
IRS. You need to determine if you are subject to the alternative
minimum tax (AMT). Many more taxpayers are finding out that they are
subject to the AMT.
For
regular tax purposes, some types of income get special treatment and some
expenses are allowed as a deduction or even a credit against income
tax. However, taxpayers who get a benefit for these items may have to
pay extra tax due to the AMT. The AMT was designed so that taxpayers
who pay little or no tax have to pay an additional tax since certain
deductions and credits are eliminated. The AMT is a separate tax
calculation and can be very confusing to taxpayers.
The
recent tax law change increased the exemption amounts for AMT. For
2003 the exemptions are $58,000 for married filing joint and qualified
widow(er), $40,250 for single and head of household and $29,000 for married
filing separate. If your regular taxable income, adjusted for the AMT
rules, is greater than these amounts, you may have to pay some AMT.
Some
of the items which have to be handled differently for the AMT include the
standard deduction or certain itemized deductions on Schedule A, state and
local taxes (which can add up quickly in high tax rate states), taxable
state and local refunds, accelerated depreciation on certain property,
intangible drilling costs, certain tax exempt interest, treatment of stock
options and allowable depletion. In addition, taxpayers must determine
is there any difference between regular tax and AMT on the sale of property,
investment interest expense, income from passive activities and other items
listed on Form 6251, Alternative Minimum Tax-Individuals. Taxpayers
must also include any adjustments and preference items listed on Schedule
K-1 from a partnership, S corporation and trust/estate.
The
recent tax law changes did allow certain items to be treated the same for
both regular tax and the AMT. Such items include the “bonus”
depreciation allowance and the lower tax on qualified dividends.
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