I worked for Ernst and Young in New York City for my busy season internship. I was placed in the Financial Services Office, and more specifically, I did tax returns for high-net-worth individuals working for financial institutions. Because all of our clients were millionaires, we had to fill out IRS Form 6251 to see if a client would be subject to the Alternative Minimum Tax. During the year, my department spends a significant amount of time devising strategies to lessen a client’s AMT burden; this can be done through state withholding estimates, property tax payments and converting to a Roth IRA plan. The Alternative Minimum Tax (AMT) was created in 1969 to ensure that ‘wealthier’ people who benefited from more itemized deductions and credits pay a minimum amount of tax. The AMT is calculated separately from an individual’s ‘1040 taxable income’ and disregards certain (primarily business-related) tax credits, thus increasing an individual’s tax liability. Generally speaking, it is advised that you complete a Form 6251 to see if you are subject to the AMT if you: make over $75,000 a year, exercised any incentive stock options, wrote off personal-exemptions, own a business, received any K-1s, or own S-corporation stock. Form 6251 essentially adds back any personal and dependent exemption deductions ($3,700 per person for 2011), the standard deduction for those who do not itemize ($5,800 for an individual, $11,600 for married filing jointly). For those who do not use the standard deduction, they must add back certain itemized deductions like investment expenses, employee business and some medical and dental expenses. Additionally, Form 6251 includes the spread between the market price and the exercise price of incentive stock options as income, whereas this spread is ignored on the 1040. Lastly, Form 6251 adds back any state, local and foreign income taxes paid, property taxes written off, and interest
Cited: "Alternative Minimum Tax: Who Pays the AMT?" Who Pays the AMT? Tax Policy Center. Web. 29 Apr. 2012. <http://www.taxpolicycenter.org/briefing-book/key-elements/amt/who.cfm>. Bischoff, Bill. "SmartMoney." The Alternative Minimum Tax (AMT). SmartMoney, 3 Feb. 2012. Web. 28 Apr. 2012. <http://www.smartmoney.com/taxes/income/the-alternative-minimum-tax-9540/>. Farnham, Alan. "Income Taxes: 30 Million May Be Hit by AMT This Year." Yahoo! Good Morning America, 8 Feb. 2012. Web. 29 Apr. 2012. <http://gma.yahoo.com/income-taxes-30-million-may-hit-amt-170738752--abc-news.html>. "How Can I Avoid the AMT?" Kiplinger Personal Finance. Kiplinger, 01 Feb. 2008. Web. 01 May 2012. <http://www.kiplinger.com/features/archives/2008/02/calculate-alternative-minimum-tax-AMT2.html?kipad_id=44>. Lewis, Roy. "Death & Taxes." Fool.com: Alternative Minimum Tax Planning. Motley Fool. Web. 29 Apr. 2012. <http://www.fool.com/taxes/2000/taxes000915.htm>. "Tax Topics - Topic 556 Alternative Minimum Tax." Internal Revenue Service. IRS, 22 Dec. 2011. Web. 28 Apr. 2012. <http://www.irs.gov/taxtopics/tc556.html>. Thomas, Kaye. "Fairmark.com." AMT Credit. Tax Guide for Investors, 10 Apr. 2011. Web. 30 Apr. 2012. <http://www.fairmark.com/amt/credit.htm>.