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2017 Federal Income Tax Planning
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Key AMT "triggers" include the number of personal exemptions
you claim, your miscellaneous itemized deductions, and your state and local tax
deductions.
TIP: If you owe AMT, you may be able to lower your total tax
(regular tax plus AMT) by claiming itemized deductions on Form 1040, even if
your total itemized deductions are less than the standard deduction. This is
because the standard deduction is not allowed for the AMT and, if you claim the
standard deduction on Form 1040, you cannot claim itemized deductions for the
AMT.
Source: 2015 Instructions for Form 6251, Alternative
Minimum Tax, Individuals | | Understanding the Alternative Minimum Tax (AMT)
What is the AMT?
The AMT is essentially a separate federal income tax system
with its own tax rates and its own set of rules governing the recognition and
timing of income and expenses. If you're subject to the AMT, you have to
calculate your taxes twice — once under the regular tax system and again under
the AMT system. If your income tax liability under the AMT is greater than your
liability under the regular tax system, the difference is reported as an
additional tax on your federal income tax return. If you're subject to the AMT
in one year, you may be entitled to a credit that can be applied against
regular tax liability in future years.
Who is liable for the AMT?
Key AMT "triggers" include the number of personal exemptions
you claim, your miscellaneous itemized deductions, and your state and local tax
deductions. So, for example, if you have a large family and live in a high-tax
state, there's a good possibility that you might have to contend with the AMT. IRS
Form 1040 instructions include a worksheet that may help you determine whether
you're subject to the AMT (an electronic version of this worksheet is also
available on the IRS website), but you might need to complete IRS Form 6251 to
know for sure.
Common AMT adjustments
Here are some of the more common AMT adjustments. Standard deduction and personal exemptions
The federal standard deduction, generally available under
the regular tax system if you don't itemize deductions, is not allowed for
purposes of calculating the AMT. Nor can you take a deduction for personal
exemptions.
Itemized deductions
Under the AMT calculation, no deduction is allowed for
state and local taxes paid, or for certain miscellaneous itemized deductions.
You can only
deduct qualifying residence interest (e.g., mortgage or home equity loan
interest) to the extent the loan proceeds are used to purchase, construct, or
improve a principal residence.
Exercise of incentive stock options (ISOs)
Under the regular tax system, tax is generally deferred
until you sell the acquired stock. But for AMT purposes, when you exercise an
ISO, income is generally recognized to the extent that the fair market value of
the acquired shares exceeds the option price. This means that a significant ISO
exercise in a year can trigger AMT liability. If ISOs are exercised and sold in
the same year, however, no AMT adjustment is needed, because any income would be
recognized for regular tax purposes as well.
Depreciation
If you're depreciating assets (for example, if you're a
sole proprietor and own an asset for business use), you'll have to calculate
depreciation twice — once under regular income tax rules and once under AMT
rules.
AMT exemption amounts
While the AMT takes away personal exemptions and a number of
deductions, it provides specific AMT exemptions. The amount of AMT exemption
to which you're entitled depends on your filing status.
Your exemption amount, however, begins to phase out once
your taxable income exceeds a certain threshold. (Specifically, your exemption
amount is reduced by $0.25 for every $1.00 you have in taxable income over the
threshold amount.)
AMT Exemption Amounts by Filing Status | 2017 |
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Married filing jointly | $84,500 |
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Single or head of household | $54,300 |
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Married filing separately | $42,250 |
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AMT Exemption Phaseout Threshold | 2017 |
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Married filing jointly | $160,900 |
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Single or head of household | $120,700 |
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Married filing separately | $80,450 |
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Note:
In the context of AMT exemption amounts and tax rates,
taxable income really refers to your alternative minimum taxable income (AMTI).
Your AMTI is your regular taxable income increased or decreased by AMT
preferences and adjustments.
The lower maximum tax rates that generally apply to long-term capital gains and qualified dividends apply to the AMT calculation as well. So even
under AMT rules, a maximum rate of 20%, 15% (for individuals in the 25%, 28%, 33%, or 35% tax bracket), or 0% (for individuals in the 10% or 15% tax bracket) applies. However, long-term capital gains and qualified dividends are
included when you determine your taxable income under the AMT system. That
means large capital gains and qualifying dividends can push you into the
phaseout range for AMT exemptions and can indirectly increase AMT exposure.
Note:
When it comes to the phaseout of AMT exemption amounts, a
special calculation applies to individuals who are married filing separately. These individuals have to add an additional amount
to their AMTI before calculating the exemption phaseout.
AMT rates
Under the AMT, the first $187,800 (for 2017) of your taxable income is
taxed at a rate of 26%. If your filing status is married filing separately,
the 26% rate applies to your first $93,900 (for 2017) of taxable income. Taxable income
above these thresholds is taxed at a flat rate of 28%.
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IMPORTANT DISCLOSURES
The information presented here is not specific to any individual's personal circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
This communication is strictly intended for individuals residing in the state(s) of AL, AK, AZ, AR, CA, CO, CT, DE, DC, FL, GA, GU, HI, ID, IL, IN, IA, KS, KY, ME, MD, MA, MI, MN, MS, MO, MT, NE, NV, NH, NJ, NM, NY, NC, ND, OH, OK, OR, PA, RI, SC, SD, TN, UT, VT, VI, VA, WA, WV, WI and WY. No offers may be made or accepted from any resident outside the specific states referenced. |
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2024. |
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