Pay rise and new business is always good news and if you experienced any of the two, it may put you over certain dollar amount. That can subsequently lead to a payment of Alternative Minumum Tax.
What is Alternative Minimum Tax?
Alternative Minimum Tax or AMT was created to institute more fair tax system, one where everyone paid his or her fair share. At the time of its creation many people where using tax loopholes allowing them to pay zero taxes, all of that legally.
Tax law provides numerous credits and deductions to reduce the overall tax liability but AMT sets a limit on those deductions.
What are the current AMT exemptions amounts?
For tax year 2014 the exemption amounts are:
- Single $52,800
- Married filing jointly $82,100
- Married filing separately $41,050
- Head of Household $52,800
Use Form 6251 to calculate whether or not you owe any AMT. Go through the calculations and compare the amount you receive with the one from your regular tax form. If the amount on Form 6251 is higher then you must pay the difference. Form 6251 is most helpful for individuals submitting paper forms and for planning purposes. You can also review your past income tax returns and compare amounts listed on Form 6251 to what you had to pay. See if there is any pattern or how close the two amounts were.
The rules for calculating AMT are somewhat different form those for calculating taxes filed on one of the 1040 forms. If you struggle to get it correct on paper there is AMT Assistant Tool created by the IRS to get it right.
Before using the AMT Assistant you can glance at the list below. This list (found on irs.gov) mentions events that require a person to fill out Form 6251 therefore there is no need to use the AMT Assistant. The events are:
- Accelerated Depreciation
- Stock by exercising an incentive stock option and you did not dispose of the stock in the same year
- Tax exempt interest from private activity bonds
- Intangible drilling, circulation, research, experimental or mining costs
- Amortization of pollution-control facilities or depletion
- Income (or loss) from tax-shelter farm activities or passive activities
- Income from long-term contracts not figured using the percentage-of-completion method
- Interest paid on a home mortgage NOT used to buy, build or substantially improve your home
- Investment interest expense reported on Form 4952
- Net operating loss deduction
- Alternative minimum tax adjustments from an estate, trust, electing large partnership or cooperative
- Section 1202 exclusion
- Any general business credit in Part I on Form 3800
- Empowerment zone and renewal community employment credit
- Qualified electric vehicle credit
- Alternative fuel vehicle refueling property credit
- Credit for prior year minimum tax