[CPASF1]

Can someone please explain AMT (individual and corporate) to me, possibly in a really dumbed- down way. I have looked at the formula in Roger’s book several times, but it is just not clicking and attempted questions at well. Thanks so much!

Here’s the question I was trying, but i don’t understand it even after looking over the solution.

Serena’s regular taxable income for 20X3 was $82,000 and her regular tax according to the tables is $16,435. She had interest earnings from tax-free private activity municipal bonds in the amount of $10,000. In addition, she exercised qualified 700 stock options on December 31, 20X3 at $80 when the market price was $100 per share. She took her standard deduction of $6,100 and one personal exemption of $3,900. The amount of her AMT exemption is $51,900.

Compute Serena’s AMT, if any.
$82,000 + $6,100 + $3,900 + $10,000 + $14,000 = $116,000. The $51,900 AMT exemption is subtracted from AMTI to yield the AMT Base: $116,000 – $51,900 = $64,100. Then the AMT tax rate of 26% is applied to the AMT Base, for a tentative minimum tax of $64,100 x 26% = $16,666. The difference between tentative minimum tax and regular tax is the alternative minimum tax she has to pay: $16,666 – $16,435 = $231.

what i don’t understand is why municipal bond is included in the AMT calculcation and how is the 14,000 calculated. is 26% always used because I see the 28% formula as well. how do we know which one to use, because i initially i though 26% is used for individual and 28% is for corporate, but i looked in the corporate formula and i see there that they use 20%? sorry for all the questions

[gerald kleiman]

“what i don't understand is why municipal bond is included in the AMT calculcation?”

Muni bond interest in not included for PERSONAL AMT purposes but PRIVATE ACTIVITY municipal bonds is included (added back). For corporate, the PRIVATE ACTIVITY municipal bonds is also added for adjustment before ace, and regular muni is added back as an ace adjustment

” how is the 14,000 calculated?”

100 FV of stock – $80 option price = $20, $20 x 700 = $14,000

“is 26% always used because I see the 28% formula as well?”
26% tax rate is imposed on the first $182,500, 28% for anything higher

“but i looked in the corporate formula and i see there that they use 20%? sorry for all the questions”
That's the corporate AMT rate not personal

[CPASF1]

thanks so much gerald! appreciate it!

[Anonymous]

@CPASF1
Hey!! So the way that I remember AMT is grasping the underlying concept. AMT is an EXTRA tax for someone who makes A LOT of money and the government is trying to squeezeeeeeeee some more taxes out of them! (Roger said it best)

SOOO…The government is trying to add all of the items that are normally excluded from income so that the individual can fall into the higher tax bracket.

Remember that AMT for indi is SIMPLE as PIE
S- ALL Std. deduction
I- ALL Interest on home equity loans not used to improve home
M- ALL Med Expenses less than 10% AGI
P- ALL Personal Exemptions
L- ALL Local, muni, and state tax
E- ALL Employee BIT 2%

P- ALL Private activity bond interest
I- ALL Incentive stock options (the gain they would've received if exercised)
E-ALL Excess depreciation over 150% for personal property

^^^^^ALL OF THESE SIMPLE PIE ITEMS WILL BE ADDED BACK TO THE REGULAR TAXABLE INCOME SO THAT THE GOVERNMENT CAN TAX YOU MORE AND SQUEEZE MORE MONEY OUT OF YOU!!!!!!!

AMT tax rate
-26% if AMTI is less than $185,400
-28% if AMTI is more than 185,400

Then you calculate the Tentative minimum tax (AMTI x tax rate=Ten. min. tax) and subtract that number by the REGULAR TAX this will give you the AMT.

The AMT number will be added back to the regular tax and that will be your new tax!

I hope this helps, please let me know if you need anymore explanations 🙂

[EZ_Sims_4_me_Pls]

I never understood it

[CPASF1]

thanks blessingO10! any tips on how to understand the corporate items, i see that there aren't any mneumonics in roger for them?

[Anonymous]

@CPASF1

Morning! Check out the corporation AMT Lesson 2.13 (page 2-19 to 2-20) 🙂

But it's the same concept for corp.

The government wants to squeeezzeee more taxes out of the corp because they made a lot of money.

Remember that the AMT for a corp is a PILE of SLIM… (okay, that doesn't make a lot of sense but it works lol)

Adjustments and Preference

s
P-Private activity bond interest
I-Installment sales of inventory
L-Long term contract income
E-Excess depreciation on personal property that exceeds the 150% declining balance

ACE adjustments (Multiply 75% of the total)

S-Seventy perecent dividend recieved deduction
LI-Life insurance proceeds on the death of key employees
M-Muni bond interest

Corporate tax rate is 20%

Exemption is $40,000 unless the AMTI is $150k or more…

in that case, you would have …

Exemption = $40k – 25% (AmTI before Exemption – $150k)

Corporate AMT Formula

Regular taxable income

+/- Adjustments and preferences

=AMTI BEFORE ACE adjustments

+/- ACE adjustments

=AMTI BEFORE exemption

-Exemption

=AMTI

(tax rate 20%)

=Tenative Min. Tax

-Regular Tax

=AMT

Trust me when I say it may seem like a lot but if you do A LOT of problems and understand the overall concept, it'll come natural to you!! Trust me that's what helps me remember it!!!

[Anonymous]

@CPASF1

Morning! Check out the corporation AMT Lesson 2.13 (page 2-19 to 2-20) 🙂

But it's the same concept for corp.

The government wants to squeeezzeee more taxes out of the corp because they made a lot of money.

Remember that the AMT for a corp is a PILE of SLIM… (okay, that doesn't make a lot of sense but it works lol)

Adjustments and Preference
P-Private activity bond interest
I-Installment sales of inventory
L-Long term contract income
E-Excess depreciation on personal property that exceeds the 150% declining balance

ACE adjustments (Multiply 75% of the total)
S-Seventy perecent dividend recieved deduction
LI-Life insurance proceeds on the death of key employees
M-Muni bond interest

Corporate tax rate is 20%

Exemption is $40,000 unless the AMTI is $150k or more…

in that case, you would have …

Exemption = $40k – 25% (AmTI before Exemption – $150k)

Corporate AMT Formula

Regular taxable income
+/- Adjustments and preferences
=AMTI BEFORE ACE adjustments
+/- ACE adjustments
=AMTI BEFORE exemption
-Exemption
=AMTI
(tax rate 20%)
=Tenative Min. Tax
-Regular Tax
=AMT

It may seem like so much to remember but keep studying the main concept and understand that these items are added back to income because the government wants to tax the indi/corp more (They're so greedy *rolls eyes* lol)

IF you go over this for at least a day or two and practice A LOT of questions, it will come natural to you! TRUST me, I remember this like the back of my hand now. I got tired of getting the questions wrong on my quizzes lol

Also, try creating note-cards with this info on it and quiz yourself on the basic info too.

I hope this helps!! 😀 !!

[Anonymous]

Thanks for posting this, I think it will help in this final week of study for me as well.

[Author]

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