Understanding Your Taxes

San Jose Tax Attorneys Ainer & Fraker, LLP Discuss How to Understand Your Taxes

If you were subject to the AMT in the prior year and had a state tax refund in that year, part or all of your state income tax refund from that year may not be includable in the regular tax computation.

To the extent you received no tax benefit from the state tax deduction because of the AMT, that portion of the refund is not includable in the subsequent year’s income.

As part of the American Taxpayer Relief Act of 2012, Congress has permanently made the amount of income that is exempt from AMT – referred to as the exemption amounts – subject to inflation adjustments in future years. Thus the amount for each subsequent year will be determined automatically and no longer require periodic Congressional action. In addition to the exemption amounts, ATRA also includes a provision for years after 2012 to inflation-adjust the amount of AMT taxable income that is taxed at the higher AMT rate of 28%.

The exemption begins to phase out for higher income taxpayers when the AMT gross income exceeds the phase-out threshold and is fully phased out once the AMT gross income reaches the full phase out amount. When income is between the threshold and full phase-out amounts, the amount of the exemption phase-out is 25% of the difference between the AMT gross income and threshold amount.Example: Mark, a single taxpayer in 2013, has an AMT gross income of $200,000. The phase-out threshold from the table below is $115,400. The phase-out amount is $21,150 ((200,000 – 115,400) x 25%). The exemption for a single individual in 2013 from the table above is $51,900. Thus, our single taxpayer will only be able to deduct $30,750 as his 2013 AMT exemption.

Example: Using Mark in the previous example, his AMT gross income was $200,000, and his allowable AMT exemption was determined to be $30,750. Thus his AMT taxable income is $169,250 ($200,000 – $30,750). Since the entire taxable income falls into the 26% AMT tax rate his AMT tax is $44,005 ($169,250 x 26%). Jack tax for the year will be the higher of his regular tax or the AMT.

For more information, please reference the following link: Growing Tax Threats