Calculating AMT - basic question but so confused

[BMEPhDinCO]

Hi all,

So I'm grateful to be in this situation, but this year we made enough that I need to learn about AMT stuff. I thought I had it under control, but now I realized I don't and we have to pay it. So my question is, how do the calculations work?

So we have about $112,000 gross (about $9000 is SE, the rest are W2 wages)
And about $20,830 in 403b (or 403a, or whatever - pre-tax deductions - this is where I messed up, obviously, but next year I'll contribute more here)

So that means our MAGI is $90,170 (right? I get the impression you can't subtract much else on that)

So, do we pay the 26% (or 28%?) AMT on the difference between the $83,800 and $90.170 ($6370) or on the entire amount ($90,170)? Or do I calculate out the AGI, and then we pay 26% (28%?)8% on that?

Other deductions:
$11,000 to tIRA
Married filling joint: $20,600 (we don't have enough expenses to itemize)

So, is our tax liability 26% (or 28%) of $58,570? Or is it something else calculation-wise? (like 10% up to first bracket, 15% up to second bracket, 26/28% after?)

I hope this all makes sense and is an easy question for someone to answer...

Thank you!

[seattlecyclone]

If you're married filing jointly with a $112k gross income and don't itemize deductions, you very likely do not owe AMT. You can work through Form 6251 for yourself to verify it. You'd put your AGI (which does not include pre-tax payroll deductions such as retirement contributions) on Line 1, skip the parts about itemized deductions, and most of Part I probably also doesn't apply to you. Then you get to subtract an $83k exemption from your income. The tentative AMT would be 26% of the remainder, which is very likely less than you would owe under the regular tax system. If so, you owe no AMT.

[BMEPhDinCO]

@seattlecyclone - so the 26% is only on the difference between the exemption amount ($83,400) and the amount after subtracting pre-tax deductions (~$91,170)? That comes out to $2020.

Where does the tIRA contribution come in? And the standard deductions? Because if I include those in, then the "taxable income" should only be around $59-60k. That then falls into the 15% bracket. So if AMT didn't exist, I'd be paying about $8k in taxes. 

So if I understand you right, since $8k > $2k, I don't have to pay AMT?

Thank you for continued help (and others willing to contribute!)

[MDM]

The definitive answer, as seattlecyclone notes, is to do your own Form 6251 or use commercial tax software.

The case study spreadsheet does include the AMT calculation.  As far as I know it's correct....

[dragoncar]

I like this website for taking you through the calculation -- it's true you can use the IRS form but this is a bit more verbose:

http://thismatter.com/money/tax/alternative-minimum-tax.htm

[seattlecyclone]

@seattlecyclone - so the 26% is only on the difference between the exemption amount ($83,400) and the amount after subtracting pre-tax deductions (~$91,170)? That comes out to $2020.

Indeed. And if that number is less than you would owe in non-AMT taxes, you don't owe AMT.

Where does the tIRA contribution come in? And the standard deductions?

The AMT form starts out with your income from Form 1040 Line 41 (if itemizing) or Line 38 (if not). This means the traditional IRA deduction would be included but the standard deduction would not. For this reason, it can make sense to itemize even if your deductions are less than the standard deduction if you expect to owe AMT and any of your itemized deductions are allowed under the AMT (i.e. charitable contributions).

So if I understand you right, since $8k > $2k, I don't have to pay AMT?

Yep!

[MDM]

So we have about $112,000 gross (about $9000 is SE, the rest are W2 wages)
And about $20,830 in 403b (or 403a, or whatever - pre-tax deductions - this is where I messed up, obviously, but next year I'll contribute more here)
Other deductions: $11,000 to tIRA
Married filling joint

Using the numbers above, plus assuming no dependents and you are both under age 65, I get a taxable income of $58,834, a federal income tax of $7,898 plus Self-Employment tax of $1,272 (total $9,170), and no AMT.  You could enter your exact numbers to check, and then compare with the actual results when you file.

[BMEPhDinCO]

Thank you so much everyone! I have a much better sense of it all now. And feel better that I won't owe like $15k in taxes! And @MDM, those numbers match what I was seeing when I tried to calculate it, so that's great.

One last clarification question - are tIRA contributions taken off gross income to get MAGI? (within the limits of the IRS of course).

So glad I have a financial forum I can get help at without being blasted for saving so much (or so little, depending on point of view).

[seattlecyclone]

One last clarification question - are tIRA contributions taken off gross income to get MAGI? (within the limits of the IRS of course).

Which MAGI are you talking about? TIRA contributions are deducted from your gross income to calculate your adjusted gross income (AGI). Various parts of the tax code use a modified adjusted gross income (MAGI) for various reasons. The MAGI they use to determine whether you can deduct your TIRA contributions does not include the TIRA deduction itself, the MAGI they use for ACA credits does. Not sure where else you would need to calculate a MAGI, but you'd have to check the rules for that particular thing.