06: Best App Tied to a Bank Account: Simple.04: Best for Cash Style Budgeting: Mvelopes.03: Best for Syncing Quicken Data: CountAbout.02: Best for Tracking All Your Accounts: Personal Capital.Best Money Management Quicken Alternatives.Having said that, when you prepare your 2020 tax return, your federal income tax will be calculated in two ways: the standard method and the AMT method. Some tax professionals have reported that the AMT now primarily affects taxpayers who have exercised a significant amount of incentive stock options. In fact, while 5 million households paid the AMT in 2017, this number plummeted to 200,000 in 2018, the first year under the new tax law. Thanks to the higher AMT exemptions and phaseouts, as well as the generally lower marginal tax brackets in the United States and the dramatic reduction in itemized deductions that resulted from the Tax Cuts and Jobs Act, the alternative minimum tax affects very few people these days. tax brackets are generally lower than they previously were, but the AMT tax brackets haven't changed. Many itemized deductions have been eliminated, which took away some major triggers for the AMT.The income thresholds at which the AMT exemption begins to phase out have dramatically increased.The amount of income that taxpayers can exclude from their AMT taxable income has increased and is now indexed to inflation annually.The Tax Cuts and Jobs Act made a few major changes that affected the AMT: Plus, there were many more potential itemized deductions than there are today. Specifically, the income thresholds at which the AMT kicked in were never indexed for inflation, so over time the tax started to apply to a greater number of households - including many middle-class households it was never intended to affect.
Prior to the implementation of the Tax Cuts and Jobs Act in 2018, the AMT looked very different. The AMT doesn't affect nearly as many people as it used to In most cases (especially for middle-class Americans), the standard system results in a significantly higher tax bill thanks to the relatively large AMT exemptions. However, it's still important to know how it works so if you get hit with the AMT, you'll understand why.įinally, it's important to mention that your federal income tax is calculated twice each year - once with the standard system and once with the AMT - and you'll pay the higher of the two. The good news is that if you use tax preparation software, like most people do, it'll do this calculation for you. For example, you can still use the mortgage interest deduction, medical expense deduction, and the deduction for charitable contributions.
It's worth noting that some itemized deductions are still allowed for AMT purposes. This list is rather long, but some of the more common items are investment interest, net operating losses, exercise of incentive stock options, and depreciation. Add back certain investment and business deductions.Then, add back in your standard deduction or certain itemized deductions, such as the deduction for state and local taxes (SALT deduction).Start with your taxable income from your Form 1040.You can calculate your alternative minimum taxable income on IRS Form 6251, but here's the general idea: