Alternative Minimum Tax

The Alternative Minimum Tax (AMT) is the excess of the tentative minimum tax over the regular tax. AMT runs parallel to the regular tax system but it has different tax rate structure. AMT rates are 26% or 28%. AMT was used to target at high-income earners to ensure that minimum tax amount of tax is paid. After the tax reform in 2018, the AMT exemptions were increased so AMT is not that easily triggered compared to pre-2018.

Nowadays, AMT can be triggered in the following cases:

1. Your income is over the phase-out thresholds ($1,036,800 for married filing jointly and $518,400 for anyone not married filing jointly) and your have large amount of Itemized Deductions.

2. You exercise Incentive Stock Options (ISOs). When you exercise ISOs, the difference between the strike price and the Fair Market Value will be added to the calculations of AMT taxable income as an adjustment. The adjustment may trigger the AMT if it is large enough.

3. You have a large amount of long-term capital gains. If you have realized long-term capital gains from the sale of stocks or real estate properties, the gains may put you over the AMT exemption. 

Some questions our clients have about the AMT are:

–How is AMT calculated?

–How much AMT should I be prepared for if I exercise ISOs?

–How does AMT credit work?

If you have any of these common questions, just contact us below & we will be more than happy to assist you.