John M. Hoffman & Associates CPAs

Frequently Asked Questions

Alternative Minimum Tax (AMT)

 

"Isn't there some refund of AMT paid?"

Yes there is what is known as the minimum tax credit which is a credit towards your regular tax for AMT paid on timing items. AMT preference items get divided into two categories, permanent differences and timing differences. When something is a permanent difference, such as state and local income taxes, it simply means that the AMT does not allow that deduction. When something is a timing difference the AMT is addressing the timing of recognizing income or claiming deductions.

So when the AMT is attributable to claiming depreciation too quickly, that AMT is carried forward as a credit. The logic is that if the depreciation is simply being claimed too quickly, that will catch up over time.  The workings of the credit in simple terms is to identify whatever portion of the AMT is due to timing items and that becomes your credit that you carry forward indefinitely. In future tax years you compare your regular tax to you preliminary AMT. To the extent that your regular tax is higher, than the AMT, you can use your AMT credit (to the extent that you have $'s of credit) to reduce your regular tax. This essentially gets you back your AMT for those timing items.

The two biggest areas of timing differences are depreciation and incentive stock option exercises. Accordingly, AMT attributable to these items of tax preference are refundable.