January 29, 2022 - Douglas Myser

The ugly alternative minimum tax. The 2017 bill passed by then President Trump, the Tax Cuts and Jobs Act, made the alternative minimum tax rules much more taxpayer friendly for the tax periods 2019 all the way though 2025, and reduced the odds you would be hit with the dreaded tax. If you had large income amounts in 2021, from capital gains though, you may find yourself owing the tax. The alternative minimum tax is a separate federal income tax system with a family resemblance to the more familiar regular income tax system that it is used in. The difference is the alternative minimum tax taxes certain income that are tax free under the usual tax system and disallows some tax breaks you can use in the normal system to lower your taxable income. In calculating the alternative minimum tax, you begin with the taxable income that you calculated and then make various additions and subtractions to reflect the differing alternative minimum tax rules. The result will determine if you owe the Alternative Minimum Tax or not. The ugly alternative minimum tax.

The current tax rate of the alternative minimum tax is set at 28% versus the maximum 37% for the regular tax rate. In 2022, the maximum 28% alternative minimum tax rate locks in when alternative minimum income exceeds $199,900 for married couples filing jointly, and $99,950 for others. Proposed legislation would increase some regular tax rates. Various factors make it difficult to pinpoint exactly who will be have to pay the alternative minimum tax. When you have higher income levels you will certainly be at risk. Those hit with the tax may want to get Tax Resolution Services. Those who have large capital gains are also the group that would be at increased risk of paying the alternative minimum tax. The Tax Cuts and Jobs Act increased both the exemption amounts and the income levels where they begin to be phased out. The fact that the Tax Cuts and Jobs Act lowered five out of the seven regular federal income tax rates while leaving the alternative minimum rates at 26% and 28% increases the odds of owing the alternative minimum tax.