Tuesday, August 2, 2016
IT AIN’T NECESSARILY SO – AMT EDITION
Here is something that you should know if you are or will be a victim of the dreaded Alternative Minimum Tax (AMT) – which I recently had to explain to a client who was a victim for 2015.
The “published” AMT tax rates are 26% and 28%. But the true “effective” tax rates could actually be 32.5% and 35%.
Your AMT exemption, based on your filing status, is reduced by 25% for every dollar that your Alternative Minimum Taxable Income (AMTI) exceeds a specific threshold amount, again based on your filing status.
For 2016 the AMT threshold amounts are –
• $119,700 – Single and Head of Household
• $159,700 – Married Filing Joint and Qualifying Widow(er)
• $ 79,850 – Married Filing Separately
The AMT base exemption amounts are –
• $53,900 - Single and Head of Household
• $83,800 - Married Filing Joint and Qualifying Widow(er)
• $41,900 - Married Filing Separate
So if you are filing a joint return and your MAGI is $169,700 you reduce your exemption, and increase the income subject to AMT, by $2,500. The exemption allowed will be $81,300 and not $83,800. So you will be paying AMT on $88,400.
If your MAGI was $159,700 you would get the full exemption of $83,800 and pay AMT on $75,900.
The additional $10,000 in income increases the amount of income subject to AMT by $12,500. In the 26% AMT bracket that $10,000 of excess income cost you $3,250 in federal tax ($12,500 x 26%), or 32.5%.
Of course there does come a point when the level of your AMTI totally wipes out the allowable exemption. Once you reach this point additional income is effectively taxed at the published rate of 26% or 28%.