By Nicole Preston, CPA, MST – Tax Manager, Doeren Mayhew

Under the Tax Cuts and Jobs Act, the individual Alternative Minimum Tax (AMT) exemption and exemption phase-out was increased to properly align with the current cost-of-living. Additionally, the new law repealed AMT for corporations. Designed to ensure that wealthy taxpayers and corporations do not completely avoid paying income tax through the use of deductions, exemptions, losses and credits, AMT is a separate method of determining tax liability and was modified in the new law to ensure it served its intended purpose. Below is an explanation of the AMT impact for individuals and corporations.

AMT Individual Impact

Over the years, the AMT system has not properly been indexed for inflation, which has caused more middle-income taxpayers to be subject to AMT. The new law increases the AMT exemption and exemption phase-out, as outlined below:

AMT-Chart

Pursuant to the Act, the amendments outlined above apply to tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026.  Additionally, the AMT exemption amounts and phase-out thresholds will be adjusted annually for inflation.

AMT Corporate Impact

Prior to the Act, the corporate AMT tax rate was 20 percent. Additionally, C corporations with average gross receipts less than $7.5 million over the preceding three tax years were not subject to AMT.

C corporations that were subject to AMT in a particular tax year received a credit for minimum tax paid, which was carried forward to subsequent tax years. The credit was claimed against regular tax liability, to the extent such liability exceeded AMT in a particular tax year.

Under new law, the corporate AMT is repealed for the tax years beginning after Dec. 31, 2017. Additionally, any unused minimum tax credit is refundable, based on the following tax years:

  • Tax Years Beginning in 2018 – 2020: The refundable credit amount is equal to 50 percent of the excess of the minimum tax credit for the tax year, over the amount allowable for the year against regular tax liability.
  • Tax Years Beginning in 2021: The refundable credit amount is equal to 100 percent of the excess of the minimum tax credit for the tax year, over the amount allowable for the year against regular tax liability.

Doeren Mayhew’s tax advisors stand ready to assist you with navigating the new tax laws related to AMT and help you prepare for these changes. Contact us today for assistance.

Want to reach the author? Email Nicole Preston or contact her at 248.244.3252.