The Alternative Minimum Tax (AMT) as it relates to Homework Problem 3-54

The Alternative Minimum Tax (AMT) as it relates to Homework Problem 3-54

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The Alternative Minimum Tax (AMT ) for 2011—an analysis as it applies to Problem 54 in Chapter 3 Problem 54 This problem is concerned with the alternative minimum tax (AMT). AMT rules have been in the Internal Revenue Code for the past 40 years ago. These rules were enacted in response to Congressional concerns that a significant number of taxpayers with a high amount of gross income somehow had managed to pay little, if any, income tax. How could a taxpayer with a high amount of gross income have little, if any taxable income? The most obvious way was by having large deductions (either through a combination of deductions for AGI, or from AGI (the greater of (1) itemized deductions or (2) itemized deductions plus deductions for personal and dependency deductions). The AMT was enacted to ensure that these individuals paid their “fair share” of income tax. The AMT basically requires that taxpayers add back to taxable income some of items which they deducted in computing taxable income. The amount thus calculated is in turn reduced by an exemption amount (subject to a phase-out) which results in an AMT base upon which AMT tax rates are applied. The amount of tax computed on this AMT base is called the tentative AMT. The AMT is the amount by which the tentative AMT exceeds the regular tax liability. There is no AMT if the tentative AMT is less than the regular tax liability. The author provides a formula for the calculation of the AMT in our textbook on the top of page 3- 25. While there is nothing wrong with this formula, and it is much like the one I show below, I suggest we use the formula, I show below, because it works well for what we need to know about the AMT, not only in this Chapter, but also in Chapter 13 where we will learn more about the
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This document was uploaded on 11/03/2011 for the course ACCOUNTING 415 at Rutgers.

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The Alternative Minimum Tax (AMT) as it relates to Homework Problem 3-54

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