First, congratulations to all of my fellow Eagles fans out there on the Super Bowl win. I have to say, I thought I would never see them win the Super Bowl in my lifetime. I’m already looking forward to next year!
Over the past few weeks, I covered the new Section 199A deduction as well as changes to the personal tax deductions for 2018. This week I will discussing the changes in 2018 to one of the most frustrating taxes for individuals and corporations – the Alternative Minimum Tax a/k/a AMT.
What is the AMT?
For those of you who don’t know what I am referring to (and for those need a refresher), the AMT is essentially the IRS’s way of ensuring certain individuals end up paying a “minimum” tax. In simple terms, the AMT starts with your ordinary taxable income and adds back state and local taxes and miscellaneous itemized deductions reported on Schedule A (of course there are many other adjustments, but these are the most common adjustments). The result of this is your AMT income base.
The AMT income base is then reduced by the standard exemption. For 2017, If your combined AGI is under $160,900 MFJ or $120,700 single, the exemption is $84,500 MFJ and $54,300 single. If you are over these amounts, the exemption begins to phase out and ultimately is eliminated at income levels of $498,900 MFJ and $337,900 single. Once the exemption is calculated, the final resulting amount after this is taxed at either 26% or 28% depending on your income.
The final AMT tax liability is then compared to your ordinary tax liability. If the AMT is higher, you end up paying that amount. If it is lower, then no adjustments are made to your taxes.
Individual AMT Changes
Starting with your 2018 taxes, the new tax laws increase the exemptions stated above to $109,400 MFJ and $70,300 single. Additionally, the phase out of these exemptions are expanded to $1,000,000 MFJ and $500,000 single. This could potentially be a huge savings to many taxpayers starting next year!
Similar to your personal taxes, C Corporations also had to re-calculate their income under the old laws. The calculation is slightly different than for personal taxes, however the same concepts are used. Under the new tax reform, the AMT will be completely eliminated from consideration.
Due to the complexity of the AMT calculations, I strongly advise you contact your tax advisor immediately to run a quick 2017 calculation as well as a 2018 calculation to see where you fall out. If you have any questions, please do not hesitate to contact me directly.