The frequencies with which various itemized deductions, tax credits, and
tax preference items occur as certain percentages of income (Tables 9 and 10); and
Certain
tax preference items would only be deducted against income in the 25% bracket but not the 35% bracket.
Tax preference items, which include portions of deductions or exclusions from income, are added back to the taxpayer's taxable income in computing alternative minimum taxable income (AMTI), which is the basis on which taxpayers compute the tentative minimum tax.
The Alternative Minimum Tax (AMT) is imposed on taxpayers whose tax deductions and
tax preference items reduce their taxable income below a specified level.
Two of the more common
tax preference items are accelerated depreciation and certain tax-exempt interest.
1) Their taxable income is $135,000 (2) Their AMT adjustments to taxable income are 30,000 (3) Their
tax preference items total 57,000 $222,000 (4) Their exemption amount is $52,950 ($70,950-$18,000) ($18,000 = 25% x ($222,000-$150,000)) (52,950) (5) Their alternative minimum taxable income is $169,050 (6) Their tentative minimum tax is $43,953
Many
tax preference items (such as excess depletion allowances and interest on private activity bonds) result in permanent differences.
The
tax preference items become the company's alternative minimum taxable income (AMTI) which is taxed at the rate of 20% to arrive at the tentative minimum tax (TMT).
The decrease in income tax expense was primarily due to a decrease in taxable income for the quarter below the level of aggregate
tax preference items and fixed tax credits.
2] Includes tax-exempt interest and
tax preference items subject to alternative minimum tax.
The 1969 minimum tax was intended to ensure that wealthy taxpayers would pay at least some tax in spite of their use of tax shelters and other
tax preference items.
Adding the LTCG into gross income and using the AMT calculation, without
tax preference items, the total tax due would be:
