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The Alternative Minimum Tax Part 2: I can’t deduct what?

by Rebecca K. Wohltman, Associate

In the first Alternative Minimum Tax blog, I introduced the concept of the tax and explained how it came into being. This time, I will explain some of the traditional deductions that the AMT denies or limits. This discussion is not exhaustive, but touches on the deductions an average taxpayer may take.

First, the Alternative Minimum Tax does away with the standard deduction (line 40 on the Form 1040). When computing tax liability, a taxpayer chooses the higher of the standard deduction or itemized deductions. (The standard deduction for 2014 was $6,200 for single or married filing separately taxpayers, $12,400 for married filing jointly or qualifying widows or widowers, and $9,100 for heads of households.) When computing your potential Alternative Minimum Tax liability, you do not receive the standard deduction.

Second, the Alternative Minimum Tax also abolishes the personal exemption (line 6 on the Form 1040). In 2014, you could receive a personal exemption of $3,950 for yourself, your spouse, and each of your dependents. If you find yourself subject to the Alternative Minimum Tax, you do not receive these exemptions.

If you fall into the Alternative Minimum Tax, you also cannot deduct miscellaneous itemized deductions or a host of taxes. Specifically, you cannot deduct state and local real property taxes, personal property taxes, war profits, excess profits taxes, and general sales taxes. The Alternative Minimum Tax also does not allow deduction of miscellaneous itemized deductions subject to the 2% of AGI floor, which includes non-reimbursed employee expenses, expenses for the production of income, hobby expenses, and tax advice expenses.

Medical expense deductions are also limited. Traditionally, medical expenses may be deducted if the expenses exceed 7.5% of a taxpayer’s adjusted gross income if the taxpayer or taxpayer’s spouse is age 65 or older. The Alternative Minimum Tax does not allow medical expenses to be deducted until the expenses exceed 10% of the taxpayer’s adjusted gross income, regardless of the taxpayer’s age.

For example, Taxpayer T has adjusted gross income of $100,000 and $12,000 of medical expenses. Normally, T would be able to deduct $4,500 for these expenses. With the Alternative Minimum Tax, T can only deduct $2,000. T must include the $2,500 difference in his taxable income for Alternative Minimum Tax purposes.

These deductions are only a sample of the deductions the Alternative Minimum Tax treats differently from the regular tax system or disallows entirely.

For additional information regarding the Alternative Minimum Tax, contact Rebecca K. Wohltman with the offices of Mathis, Marifian & Richter, LTD. in Belleville, IL.

Professional Services Disclaimer: Please note that the information presented here is as an educational service, and while it contains information about legal issues, it is not legal advice. No warranty is made regarding the applicability of the information presented to a particular client situation, and the information set forth is not a substitute for original legal research, analysis and drafting for a particular client situation.

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