AMT (2024)

FAQs

How can you avoid triggering the alternative minimum tax? ›

A good strategy for minimizing your AMT liability is to keep your adjusted gross income (AGI) as low as possible. Some options: Participate in a 401(k), 403(b), SARSEP​, 457(b) plan, or SIMPLE IRA by making the maximum allowable salary deferral contributions.

Avoiding AMT on ISO Stock Options

As you near year's end, determine your tax liabilities and if selling the shares in the same calendar year makes sense. It will trigger a disqualifying disposition, but you'll pay your ordinary income tax rates on the earnings and won't trigger AMT.

Taxpayers who had incomes that exceeded the AMT exemption of $81,300 (single), $126,500 (married filing jointly) and $63,250 (married filing separately) in 2023 may be subject to the alternative minimum tax when they file their 2024 tax return. AMT tax rates are 26% or 28%.

From your AMTI, subtract the AMT exemption amounts, which phase out at higher income levels. Apply the AMT tax rate(s) to the resulting income to determine your tentative minimum tax (TMT). Your AMT liability is the amount by which this tentative minimum tax exceeds your regular tax liability.

Line 2a: Standard deduction or deductible taxes from Schedule A: In calculating the AMT, you cannot take itemized deductions for state and local income tax, real estate taxes and personal property taxes, even though these are deductible on your regular return.

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The AMT is indexed yearly for inflation. For the 2024 tax year, it's $85,700 for individuals and $133,300 for married couples filing jointly. Higher income levels for exemption phaseout. Phaseout for the 2024 tax year begins at $609,350 for individuals and $1,218,700 for married couples filing jointly.

Long-term gains (e.g., profits from selling a home or other investments) are taxed at the same rate under both systems, but capital gains could put you over the AMT exemption threshold. That could cause the AMT to kick in, which means you may not be able to deduct state income taxes you paid.

The Prior-Year Minimum Tax Credit lets you get back money you paid as an AMT in a prior year. You can only claim this credit in a year when you don't have to pay AMT. You can't use the credit to reduce your AMT liability in the future.

Taxpayers with high itemized deductions, such as those for mortgage interest, state and local taxes, and miscellaneous deductions, are more likely to trigger the AMT. Additionally, certain types of income, such as long-term capital gains and qualified dividends, may increase the likelihood of being subject to the AMT.

How do I know if I paid alternative minimum tax? ›

To find out if you may be subject to the AMT, refer to the Alternative Minimum Tax (AMT) line instructions in the Instructions for Form 1040 (and Form 1040-SR). If subject to the AMT, you may be required to complete and attach Form 6251, Alternative Minimum Tax – Individuals. See the Instructions for Form 6251 PDF.

Exclusion items are only the following AMT adjustments and preferences: certain itemized deductions (including any investment interest expense reported on Schedule E), certain tax-exempt interest, depletion, the section 1202 exclusion, the standard deduction, and any other adjustments related to exclusion items.

The alternative minimum tax, or AMT, is a different, yet parallel, method to calculate a taxpayer's bill. It applies to people whose income exceeds a certain level and is intended to close the loopholes that allow them to reduce or eliminate their tax payments. It's adjusted each year for inflation.

The AMT is charged when you exercise your ISOs, hold on to your shares, and sell them after the calendar year in which they were awarded to you. The AMT is calculated based on the difference between the fair market value of the shares on the date that you exercised the shares and the exercise price.

What does AMT have to do with exercising stock options? If you exercise your incentive stock options (ISO) and don't sell them in the same year, the spread between the price you paid for the options and what they're worth when you exercise is counted as income when you calculate AMT.

Under the tax law, certain tax benefits can significantly reduce a taxpayer's regular tax amount. The alternative minimum tax (AMT) applies to taxpayers with high economic income by setting a limit on those benefits. It helps to ensure that those taxpayers pay at least a minimum amount of tax.

You can complete IRS Form 6251 by hand, use tax software programs or hire a professional tax preparer to determine if you owe the AMT and, if so, calculate the amount you owe. The IRS has set income levels to determine which rate you're charged for your AMT.

Essentially, you can carry forward the difference between the AMT and your regular tax liability for seven years, or until you use it up. It counts as a credit, but only against regular tax payable, not against future years' AMT. You can claim this credit using Form T691.

These are some of the most likely situations: Having a high household income. If your household income is over the phase-out thresholds ($1,156,300 for married filing jointly and $578,150 for everyone else), and you have a significant amount of itemized deductions, the AMT could still affect you.