The following are 8 signs that you may owe the Alternative Minimum Tax (AMT), or the rich-mans tax, this year.
- You or your household fall into the high income category (generally $250,000 or more), which means that a good part or all of your AMT exemption is phased-out.
- You have relatively hefty deductions for state and local income taxes under the regular tax rules (say $20,000 or more). These deductions are disallowed under the AMT rules.
- You have a spouse and several kids which translates into four or more personal and dependent exemption deductions under the regular tax rules. These deductions are disallowed under the AMT rules.
- You exercised one or more in-the-money incentive stock options (ISOs). The so-called bargain element (the difference between the market value of the shares on the exercise date and the ISO exercise price) does not count as income under the regular tax rules, but it does count as income under the AMT rules.
- You have a significant deduction for home equity mortgage interest. Under the regular tax rules, you can deduct the interest on up to $100,000 of home-equity loans. But under the AMT rules you can only deduct interest on loan balances of up to $100,000 that are used to acquire or improve your first or second residence.
- You have write-offs for miscellaneous itemized deduction items (such as investment expenses, fees for tax advice and preparation, and unreimbursed employee business expenses) under the regular tax rules. These deductions are disallowed under the AMT rules.
- You have business depreciation write-offs for personal property assets such as machinery, equipment, computers, furniture, and fixtures used in a sole proprietorship or a partnership, LLC, or S-corporation in which you own an interest. These assets must be depreciated over longer periods under the AMT rules, so a portion of your regular tax deductions are disallowed for AMT purposes.
- You have private activity bond interest which is tax-free under the regular tax rules but taxable under the AMT rules.
If you one or more of the above apply to you, I suggest you start planning for a bigger tax hit this year. If your AMT bill exceeds your regular federal tax bill (), you will owe the AMT.
You can estimate your AMT liability by filling out IRS Form 6251 (Alternative Minimum Tax—Individuals) or use Turbo tax or some online tax filing tool to get a quick and free estimate