What is the Alternative Minimum Tax?
In 1969 the Alternative Minimum Tax was enacted to assure that the rich pay at least a minimum amount of tax. This is accomplished in a number of ways.
The first is by eliminating certain deductions. Some of these are:
- Miscellaneous itemized deductions
- Personal exemptions
The second is by adding items of income, such as:
- Interest from specified private activity bonds
- Exercise of incentive stock options
Another way is to use a different method to compute allowable deductions. For example:
- Depreciation on assets placed in service after 1986
- Intangible drilling costs
If your taxable income after applying the necessary adjustments exceeds a certain amount ($80,800 for married couples filing jointly in 2013) then you may be subject to the tax. The alternative minimum tax is computed and compared to your regular tax computation. You pay the higher of the two taxes.
If you pay alternative minimum tax due to deferral items such as depreciation and incentive stock options, you are entitled to a credit in future years when your alternative minimum tax computation is less than your regular tax.
As always, this is only meant as a brief overview. If you feel that we can be of further assistance to you, please contact our office to set up an appointment.
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- Doherty & Associates Team