When to Accelerate Income – Take Advantage of the Lower Amt Rates
As illustrated in the overview, both the regular taxable income and the tentative alternative taxable income begin with the same adjusted gross income before the exemptions, deductions, and AMT adjustments. This creates a situation for high income taxpayers where the regular marginal tax rate is actually higher than the effective AMT tax rate. When this occurs, it may be appropriate to accelerate income to take advantage of the lower AMT tax rate.
Example – Subject to AMT with Regular Marginal Tax Rate Higher than the AMT Tax Rate – Single filing status; 2024 rates
| Reg Tax | AMT | |
| Regular Tax AGI | 900,000 | 900,000 |
| ISO Preference Income | 200,000 | |
| Home Mortgage Interest Deduction | <50,000> | <50,000> |
| State Income Tax Deduction | <10,000> | |
| AMT Exemption | <88,100> | |
| AMT Exemptions Phase Out | 88,800 | |
| Taxable Income | 840,000 | 1,050,000 |
| Marginal Rate | 26% | 28% |
| Tax * | 274,872 | 298,218 |
| * Does not include any health care reform surtaxes which are additional when applicable |
Thus, this single taxpayer could accelerate income and enjoy a tax rate of 28%. How much income? The amount that can be added to income is the amount that is added to AGI to bring the AMT tax and regular tax to the same amounts. Because of various AGI limitations, phase-outs etc, the amount is determined using a tax program; keep adjusting the income until the taxes are equal.