Understanding Alternative Minimum Tax (AMT) for S Corporations

Assume for a moment that you own a tax practice and the majority owner, Sherry Jones, of Hastings Printing, an S Corporation (your client), informs you that she has recently heard about the alternative minimum tax (AMT) and wants you to be sure to check if that alternative minimum tax can save her money on her personal tax return. Respond to that statement and discuss your thoughts on the reasons for, and the appropriateness of, this AMT. You may have to use an internet search for details of this tax. The alternative minimum tax (AMT) applies to taxpayers with high economic income by setting a limit on those benefits. It helps to ensure that those taxpayers pay at least a minimum amount of tax. The corporate AMT does not apply to S corporations, regulated investment companies, and real estate investment trusts. Individuals are subject to tax under the alternative minimum tax (AMT) system The most frequently encountered is the depreciation adjustment because depreciation is common to so many business enterprises The AMT is the extra tentative minimum tax over the regular tax. The AMT is owed only if the tentative minimum tax for the year is greater than the regular tax for that year. The tentative minimum tax is figured separately from the regular tax. The law sets the AMT exemption amounts and AMT tax rates. Taxpayers can use the special capital gain rates in effect for the regular tax if they're lower than the AMT tax rates. Businesses are not allowed to use the 200 percent declining balance method to depreciate tangible personal property. They must choose from the 150 percent declining balance method or the straight-line method to depreciate the property for AMT purposes[ CITATION Spi23 \l 1033 ]. AMT adjustments, also flow through from the S corporation to its shareholders and are reported to shareholders on Form 1120-S, Schedule K-1. Each year the AMT exemption amount automatically adjusts with inflation. The AMT exemption is like a standard deduction for calculating the alternative minimum tax[ CITATION Tur23 \l 1033 ]. The 2022 exemption amounts are listed below: Single taxpayers:$75,900 Married taxpayers filing jointly:$118,100 Married filing separately:$59,050 Head of Household:$75,900 References CPA, T. (2023, February 13).Alternative Minimum Tax: Common Questions. Retrieved from intuit Turbo Tax