AMT Rates and Exemptions

The alternative minimum tax (AMT) method provides each taxpayer with a flat dollar amount that is completely exempt from tax. The dollar amount of your exemption depends on your filing status. The exemption amounts for 2011 are:

• $74,450 if married filing jointly or as a surviving spouse
• $48,450 if single or a head of household
• $37,225 if married filing separately

If your taxable income for AMT purposes (called AMTI) exceeds the exemption amount, you will be subject to a 26 percent AMT rate on the first $175,000 of AMTI ($87,500 for married taxpayers filing separately) that exceeds the exemption amount, and a 28 percent rate on any AMTI above this $175,000 amount.

AMT exemption phaseout. In keeping with the congressional purpose to extract tax from high-income individuals, the AMT exclusion amount is phased out as one's income increases. Although the AMT exemption amounts for individuals are increased for 2011, the threshold levels for calculating the exemption phaseout remain unchanged. Thus, the exemption amount for tax years beginning in 2011 is still reduced by 25 percent for each $1 of alternative minimum taxable income (AMTI) in excess of: (1) $112,500 in the case of unmarried individuals, (2) $150,000 in the case of married individuals filing a joint return and surviving spouses, and (3) $75,000 in the case of married individuals filing separate returns. However, because the calculation of the phaseout amount is affected by the amount of AMTI that is exempted, an increase in the exemption amount will also increase the maximum amount of AMTI a person can have before the exemption amount is phased out.

Work Smart There's no doubt about it — the AMT can play havoc with your tax planning. If your AMT liability and your regular tax liability tend to be approximately equal from year to year, your best bet is to maintain this stability. If your deductions are not so evenly spaced and you tend to have great fluctuations in income from year to year, you may be able to shift some AMT-triggering items from an AMT year to a non-AMT year, so as to reduce your liability in a non-AMT year almost to the point at which you would become subject to the AMT. Your tax professional can tell you whether this might be possible in your individual situation.