Alternative Minimum Tax

The alternative minimum tax (AMT) targets higher income earners and therefore provides an exemption for taxpayers with income levels below a certain threshold. The AMT exemption amounts are:

  • $55,850 for separate filers
  • $111,700 for married couples filing jointly
  • $71,700 for singles and heads of households

Here are the exemption phaseout thresholds:

  • $1,020,600 for married couples
  • $510,300 for all other taxpayers with the exception of estates and trusts

Planning Opportunities

Most taxpayers will not find themselves subject to AMT for the following reasons:

  • Nonbusiness miscellaneous deductions are not currently deductible
  • The state and local tax deduction is significantly limited
  • A substantial increase to the AMT exemption phaseout level

Note that the first two are historical add-backs for AMT.

AMT will continue to impact taxpayers with more substantial transactions that have AMT adjustments, such as incentive stock options. The planning opportunities will revolve around keeping taxable income below the income threshold amounts during the years that the AMT transaction transpires.

For example, taxpayers could potentially exclude gain from certain small business stock if it meets the Internal Revenue Code (IRC) Section 1202 guidelines. The exclusion does include an AMT add-back component, which historically made the provision less lucrative. If you’re expecting a transaction that meets the IRC Section 1202 guidelines, it will be vital to defer income or accelerate deductions to remain below the income threshold of $1 million for married filers or $500,000 for other taxpayers.

More Resources

Individuals will need to consider the effects of President Trump’s tax reform in their 2017 income taxes.

Learn how eligible small businesses and individuals can offset alternative minimum tax (AMT) with R&D credits.