Tag Archives: Form 1040

If the AMT Rate Kills You One Year, Hope Exists in a Credit Next Year

The Alternative Minimum Tax is not something anyone wants to fall victim to, but at least the rate cannot go as high as the regular tax.  When figuring your tax, the rate under the AMT system may turn out to be lower than your regular rate, so even though you will have to remove some of your nice deductions from your taxable income, you’ll be using a rate of 26% or 28%, depending on the amount of your taxable income under the AMT rules.  Regular rates for income taxes range from 10% to 39.6%.

Which Alternative Minimum Tax Rate Do I Use?

If your taxable income is less than $175,000 then your Alternative Minimum Tax Rate is 26%.  If it’s over that, the rate is 28%.  For the super rich, the AMT may end up totaling less money than the regular tax because the Alternative Minimum Tax Rate is so much lower than what regular income tax rates can be:  almost 40% for the top income tax brackets!

If You Get Caught in the AMT Web…

Let’s say you figure your taxes and it turns out you end up having to pay the Alternative Minimum Tax.  Well nothing you can do about it.  You can’t give back your high salary, change the law, or avoid paying.  But there is one light at the end of the tunnel, hope for the future let’s say… it’s the Minimum Tax Credit (MTC).

If in future tax years you don’t have to pay the Alternative Minimum Tax rate, then you can apply the Minimum Tax Credit.  The amount you paid in AMT over the regular tax system can be applied as a tax credit in following years.  That’s only if you’re not subject to the Alternative Minimum Tax rate for the year you’re using the MTC.

The form you use for the Minimum Tax Credit is IRS form 8801.  It’s available for download in PDF format at the IRS website here.  It’s called Credit for Prior Year Mnimum Tax- Individuals, Estates, Trusts.

If you use IRS form 8801 you cannot use form 1040 EZ to file your income tax return.  You can’t use form 1040A either.  You must use the full 1040 form.

Just Another Reason Why Using Tax Software is Best

If you were subject to the AMT, your income is probably complex enough that using tax preparation software is going to be extremely beneficial to you.  Commercial tax software (or their online versions) like TurboTax or TaxAct can help guide you through the awful maze of IRS forms and tricky concepts like the Alternative Minimum Tax rate.  You simply answer questions and the software does the rest for you.