The Alternative Minimum Tax
To the surprise of some commentators, markets rallied after the election of Donald Trump. One way to explain the surge is that Trump’s economic policies are pro-business and pro-middle-class.
A specific policy point that garners excitement among the business class is the repeal of the AMT, the Alternative Minimum Tax. In the most basic sense, the AMT is a minimum amount of money owed for a given level of income, regardless of exemptions and deductions.
Typically, businesses and high-earning individuals claim a number of tax benefits each year. They make donations, claim exceptions, earn tax credits, and so on. Such benefits and deductions significantly decrease the regular tax amount.
However, the AMT was passed with the intent of preventing a taxpayer from decreasing the regular tax amount too much. When the tax calculated after benefits falls below the AMT, the taxpayer must pay the difference between the regular tax amount and the AMT.
AMT is set by law and accordingly varies from year to year. It has been the policy of the Obama administration to ensure high-earners and businesses pay a minimum amount in taxes. By contrast, Trump’s plan is to decrease the tax burden on the business class.
Many expect a Republican controlled legislature and a Trump White House will be able to reduce or repeal the AMT. If the AMT is repealed, your tax liability may significantly decrease. Which is why businesses eagerly wait to see how Trump’s policies will be enacted.
Does AMT apply to you? It applies to high-earning individuals, C corporations, estates, and trusts.
Still not sure if the AMT applies to you? Contact CAS! We’ll be happy to discuss the implications of an AMT repeal on your business.