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The Tax Cuts and Jobs Act— The Death of Alternative Minimum Tax?

The Tax Cuts and Jobs Act (TCJA) made major changes to the Alternative Minimum Tax (AMT). The minimum tax was enacted in 1969. The idea was for high-income households (with lots of deductions) to pay their share of taxes. There was a problem, though. The AMT exemptions were never indexed for inflation, so as wages increased the AMT applied to more and more taxpayers.

So What’s Different for 2018?

Most taxpayers will escape the AMT now. CNN Money reported the number of taxpayers snared by AMT will drop by 96% under the new law. That’s because the TCJA made several big changes:

  • The amount of income exempt from AMT was increased. For joint filers, the exemption amount increased to $109,400—up from $84,500. For single taxpayers, it increased to $70,300 from $54,300.
  • For 2017 joint filers, the above exemptions began phasing out at $160,900 of income. In 2018, the new phase-out begins at $1 million.
  • There are fewer deductions to trigger AMT. Personal exemptions and miscellaneous itemized deductions are eliminated, while state and local taxes are capped at $10,000.
  • The AMT is repealed for corporations.

Taxpayers who paid the AMT in the past might have a planning opportunity. Some will have AMT Minimum Tax Credits (MTC), which could be used to reduce your regular tax bill for 2018. Hopefully, if this applies to you, this credit has been carried forward by your preparer or tax software. If you have significant income for 2018 or have incentive stock options to exercise you may be subject to AMT. Now is a good time to begin planning.

We can help you with that. Just give us a call.