Understanding alternative minimum tax

The Alternative Minimum Tax (AMT) is a parallel federal income tax system with its own set of rates and deductions. Even though it was originally created to close loopholes used by the wealthiest individuals, today many middle-class Americans owe the AMT in addition to federal income tax.

Each year when you calculate your federal income tax liability, you must also calculate your AMT liability. Under the AMT tax code, many deductions allowable through the ordinary income tax guidelines are excluded. Because you cannot deduct dependent credits, home equity loan interest, property taxes, and state and local income taxes paid, you have more taxable income. So if you reside in a state with high income taxes or you have more than two children, you could have AMT exposure.

 

2014 Alternative Minimum Tax
Filing status Exemption amount
Single $52,800
Married filing jointly $82,100
Married filing separately $41,050

How do you know if you owe the AMT?

When you file your taxes, you must fill out  IRS Form 6251 (PDF) .

If your tax calculation on Form 6251 is higher than your IRS 1040 tax calculation, you must pay the federal income tax due from your 1040 plus the difference as AMT.

What could trigger AMT exposure?

  • Large numbers of personal exemptions
  • The standard deduction (if you claim it)
  • Significant itemized deductions
  • A large capital gain
  • Exercising incentive stock options
  • Accelerated depreciation
  • Interest from private activity municipal bonds
  • Investment expenses
  • Passive income or losses

Take steps now to manage your AMT liability. Your financial advisor can show you strategies to help protect your assets and minimize the impact of the AMT.

Lincoln Financial Group® affiliates, their distributors, and their respective employees, representatives, and/or insurance agents do not provide tax, accounting, or legal advice. Please consult your own independent advisor as to any tax, accounting, or legal statements made herein.

Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates, including broker-dealer/distributor Lincoln Financial Distributors, Inc., Radnor, PA, and insurance company affiliates The Lincoln National Life Insurance Company, Fort Wayne, IN, and Lincoln Life & Annuity Company of New York, Syracuse, NY. Affiliates are separately responsible for their own financial and contractual obligations.