Contact AgStar for a low cost, tax saving lease that could help you reduce your tax bill, and possibly even avoid getting caught up under the AMT tax trap. The alternative minimum tax originally was designed as a parallel tax system to the regular income tax to ensure that higher-income taxpayers who take a lot of deductions pay at least a minimum amount of tax. But in recent years, the AMT has started snaring more middle-income taxpayers. Taxpayers most likely to trigger the AMT are those taking large deductions in relation to their income, people who have high state or local taxes, taxpayers who have high employee business expense deductions, and people exercising qualified incentive stock options. How it works First, let's look briefly at how the AMT works.
Taxpayers first calculate their regular income tax.
One of the biggest triggers to AMT these days occurs when taxpayers exercise their qualified incentive stock options. Under regular income taxes, you don't owe any taxes on the spread between the market price and the exercise price until you sell the shares. However, under AMT that spread is treated as income. After the adjustments and preference items are added back, you basically get to take a single allowable exemption. If the resulting tax is higher than what you calculated on your regular income tax, you pay the higher AMT amount.