For 2017, Alternative Minimum Tax exemption amount is $54,300 and begins to phase out at $120,700 ($84,500, for married couples filing jointly for whom the exemption begins to phase out at $160,900).
I’d add that if you are subject to AMT and you want to reduce tax liability, you are probably better off to max out contributions to your 401K and increase charitable contributions, because you get to keep those deductions. Here’s an article about how AMT works: https://www.nerdwallet.com/blog/taxes/alternative-minimum-tax-amt/
I can’t really answer that because I’ve never been subject to AMT. I don’t think I could do a better job of explaining it than the nerdwallet article I linked to. Here’s another article you might also check: http://www.taxpolicycenter.org/briefing-book/what-amt
Here’s a quote from that article (but I think these are 2016 tax year numbers rather than 2017)
So here is how I think it works: If your AGI is more than the AMT exemption amount, you need to calculate your tax two ways. (1) the normal way, and (2) the “alternative” way of adding back in your standard deduction, personal exemptions, and schedule A deductions for SALT, and some other less common items, and then subtracting the AMT exemption and figuring your tax with AMT rates.
The “phase out” means that if your income is higher, the exemption gets scaled back as well.
AMT is based on your taxable income from line 41 on the 1040, which is before your personal exemptions are subtracted out. It’s basically AGI minus schedule A deductions or the std deduction.
Then you add back in any SALT deducted on schedule A. (There are other adjustments but this is the biggie for most people.)
Then you subtract the AMT exemption amount, which for MFJ is $84,500. This gives you your AMT income.
However, if your AMT income is over $160,900 (MFJ) the AMT exemption amount starts getting reduced. This is the “phase out” calmom is referring to.
After you calculate your AMT income, you use the AMT tax brackets to calculate your tax - 26% if your AMT income is under $187, 800, and 28% for the amount over $187,800. However, because of the way the AMT tax exemption is reduced, if you are in the region where the exemption is being phased out, you can pay at 35% incremental rate. Once the phaseout has eliminated all of your AMT exemption, you are paying a straight 28% on all your AMT income.
You pay whichever is higher, regular tax or AMT tax, although it shows up on your 1040 as the difference being added in if AMT is higher.
Once enough of your income is taxed at the higher regular tax brackets (up to 39.6%) you wind up paying more than the flat AMT amount, so you don’t pay AMT at that point.
It is based on Alternative Minimum Taxable Income (AMTI). Start with AGI (if not itemizing Schedule A deductions) or AGI - Schedule A deductions, than add back some Schedule A deductions as well as other preference items to get AMTI. See Form 6251 at https://www.irs.gov/pub/irs-pdf/f6251.pdf (line 1 is the AGI or AGI - Schedule A deductions, line 28 is AMTI).
The AMT exemption is then subtracted (line 29) to get the amount that the AMT is applied on (line 30). Then AMT is calculated (lines 31-33). If line 33 is higher than the regular income tax on Form 1040, the excess amount is calculated (line 35) and transferred back to Form 1040 line 45 as an added amount of tax.
Seems like in any tax thread, the AMT comes up (sometimes more than once). Just look at Form 6251 to answer your questions.
That’s pretty much in line with what I expected to see— you really can’t get a tax deduction in any context for payments that aren’t yet owed. There is a difference between prepaying amounts already incurred and prepaying estimated future expenses. And also a difference between when an expense is incurred and when it is due and payable.
This sounds like an invitation for an audit and potentially a tax fraud prosecution. An estimated tax payment is meant to be a reasonable prediction of the taxes owed – not some number you pick out of the air in order to generate an inflated deduction. I would not recommend this tactic for anyone who does not ordinarily make estimated tax payments. I would not recommend that anyone who has made estimated payments in the past increase their payment without a basis in fact. My grandfather used to say (among other things that would violate the ToS here) “If it sounds too good to be true, it is.” Post #211 qualifies in my opinion. Please note that this is not legal advice as I do not have an attorney-client relationship with any of you. It is offered in friendship to this community.
My town has our 2018 prop tax bill amounts online now - so no one here has to estimate at all. Our Governor’s Exec order required the counties to issue the tax warrants before Dec. 28. I’m paying mine tomorrow.
Potentially. AMT is complicated, but one step in calculating AMT is that you have to add back the SALT deductions to your taxable income.
I have seen statements that paying the higher property tax could trigger AMT when it would not otherwise, but I personally can’t figure out how. I think you are just adding back a figure that you have already subtracted out, so I can’t see how it woulid impact whether or not AMT applies.
But what I can see is that if your property taxes are $8000 a year and you pay $16000 in 2017 but are subject to AMT, then you are not going any SALT deduction for 2017, but in 2018 with higher AMT limits, you might be eligible to take the deduction with the same income overall.
So basically if you know that you are subject to AMT, there is no benefit to pre-paying expenses you can’t deduct anyway, and there might be better things you can be doing with that money. (If the goal is really to reduce taxes, you could give the money to charity instead - although obviously if you pay $1000 to charity and are paying an averaged tax rate of 30% on your money, your $1000 contribution would cost you $700. But if you’d rather see your money going to you favorite charity than to the US Treasury, that’s always an option).
How can towns accurately bill 2018 property taxes when budgets haven’t been set, property values haven’t been adjusted for reappraisals, tax rates haven’t been set, etc? Is the fact that a number has been posted on a web site a guarantee that will be the final bill?
What if you sell your house before the 2018 tax bill is due?
How is this different than my tongue-in-cheek scenario above, except instead of taking a refund I apply it to next year’s tax?
I agree with @AboutTheSame about the income taxes. I don’t think there is any harm in prepayng what you think you will owe, but there better be a factual basis for prepaying additional amounts that will be borne out when you file your return. A large capital gain might be the type of thing that would justify prepayment. I’m in California in a tax bracket with a 9.3% rate – so if I had a large capital gain – say, $20,000 – it would make sense for me to prepay the $1860 that gain would trigger. This doesn’t apply to me in the current year, but I have run into this issue in prior years – and I’ve always felt its easier to prepay anticipated tax at the time the money comes in, rather than at tax time in April.
@notrichenough, my bill usually comes the first week of January and is due by the end of the month - so rates are already set, just the warrants usually aren’t out until first week of January. The amount of tax bill posted is exactly what I would owe if it was posted/mailed to me next week.