Alternative Minimum Tax

The Alternative minimum tax may be triggered when individuals have substantial itemized deductions and/or income that receives preferential treatment. Some of the more common "tax preference items" that may trigger Alternative minimum tax are incentive stock option income, passive losses, certain tax-exempt interest, foreign tax credit, and accelerated depreciation or depreciation methods.

The concept of alternative minimum tax is to ensure that all taxpayers pay at least a minimum amount of tax. While the alternative minimum tax was initially designed to apply to the highest bracket taxpayers, many middle class taxpayers are now triggering the alternative minimum tax.

Alternative minimum tax is a separate tax that is payable only if it exceeds a person's "regular tax". The most common alternative minimum tax factor, which affects expatriates, is the Alternative minimum tax foreign tax limitation. This limits the Foreign Tax Credit on your tax return to 90% of your pre-credit Alternative minimum tax liability.

A complete description of alternative minimum tax and its complex provisions is beyond the scope of this book. A basic discussion is provided. Beyond this taxpayers should seek tax advice regarding the alternative minimum tax and their circumstances.

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