Do you need to think about the
alternative minimum tax?
You may not have thought much
about the alternative minimum tax, or AMT, since Congress passed a law that
permanently fixed the exemption. But the tax, which you calculate separately
from your regular tax liability, is still around. Here's how the AMT might
apply to your 2016 tax return.
Certain income and deductions,
known as preference items, are added to or subtracted from the income shown on
your federal income tax return to arrive at your AMT taxable income. For example,
certain bond interest that you exclude from your regular taxable income must be
included when computing income for the AMT. This is a "preference item"
because tax-exempt interest gets preferential treatment under ordinary federal
income tax rules.
AMT "adjustments"
also affect whether you'll owe the tax. These include personal exemptions and
your standard deduction. In the AMT calculation, these taxable-income reducers
are not deductible. Instead, they're replaced with one flat exemption, which is
generally the amount of income you can exclude from the AMT. For your 2016
return, the AMT exemption is $83,800 when you're married filing a joint return
or are a surviving spouse, $53,900 when you file as single, and $41,900 if you're
married and file separately. The exemption decreases once your income reaches a
certain level.
Finally, only some itemized
deductions, such as charitable contributions, are allowed in the AMT
calculation. Others, including medical expenses and mortgage interest, are
computed using less favorable rules.
Need help determining whether the AMT will apply to your
2016 return? Give us a call.