Alternative Minimum Tax (AMT)

Alternative Minimum Tax

Although most taxpayers pay a fixed rate, some are paying a parallel tax rate. This may apply to everyone for various reasons. Exemptions and varied tax rates are included in Alternative Minimum Tax (AMT). Read below to find out more.

What is Alternative Minimum Tax (AMT)?

An AMT is another method to calculate income tax for individuals. AMT is a different way. To calculate your tax, if your income reaches a specific level, the IRS uses a parallel tax system. You have two ways of calculating your taxes if you are subject to the AMT. The taxpayer has to pay a higher fee when the AMT results in a larger tax bill. The AMT has several restrictions on the income and deductions that it employs.

For taxpayers earning above specific limits, the IRS has established an alternative minimum tax. The basic goal of the AMT is to recalculate income tax so that adjusted gross income includes certain tax benefits. After allowing deductions, the AMT applies a new set of criteria for calculating the tax, and primary deductions are then re-added to the income for calculating a minimum taxable alternative income. The final amount is then calculated by the exemption from AMT.

The primary goal of the AMT is for all taxpayers to have a fair tax rate to pay the minimum tax. This is a method for avoiding the use of deductions for wealthy taxpayers. The AMT guarantees that all taxpayers, rich or poor, pay the same minimum level of taxation.

Calculating AMT

The AMT uses the taxpayer’s regular tax income to adjust it by making use of its preferences. Alternatively, the calculations add additional income to the usual taxable income or deductions to provide for the alternative minimum taxable income (AMTI). Following adjustments, the exemption for AMT is subtracted and the implementation of the AMT tax rates determines the tentative minimum tax.

You can determine if you are subjected to the AMT in various ways. If you claim certain itemized deductions on your Schedule A, exercise Intensive Stock Options (ISOs), but don’t sell your stock in the same year, and have interest received through private activity bonds, you may be subjected to the AMT.

AMT Exemptions

The AMT exemption is applied after the alternative minimum taxable income, or AMTI is determined by removing or adding adjustment and preference items. The amount of the exemption is determined by your AMTI and your tax-filing status for the year. For the tax year 2020, if you are married and filing jointly or a qualifying widower, your exemption amount is $113,400. If you’re a single or head of household taxpayer, the figure is changed to $72,900, and if you’re married filing separately, it’s now $56,700.

It’s important to note that an AMTI exemption for taxpayers having AMTI beyond a specific threshold isn’t available. For taxpayers married filing jointly or qualified widowers, the amounts free for 2020 are gradually lowered to a rate of 25 cents for every $1 of AMT income exceeding $1,036,800. For single taxpayers or head-of-household taxpayers, the phase-out begins at $518,400. The phase-out begins at $518,400 for married taxpayers filing separately.

These exemption amounts will be deducted from your AMTI depending on your filing status, and the remaining income will be subject to the AMT rate. Individuals can use a tax software program or fill out IRS Form 6251 to see if they owe AMT. Medical expenditures, home mortgage interest, and other deductions are all requested on the form. Other information, such as tax refunds, capital gains, and so on, is also requested on the form. Contact a Miami Tax Accountant or a Tax Preparer in Miami for a thorough estimate of your AMT and to see if you qualify.

Some taxpayers may wish to avoid the AMT, and this is doable. You must understand how the AMT works and how it differs from the ordinary tax system if you wish to avoid the AMT. Many deductions and expenses that count towards AMT are listed on IRS Form 6251. Taxable income, standard deductions, deductible expenses, tax refunds, investment interest, depletion, and net operating loss are some of the lines on the form. It also inquires about stock income incentives and stock options. You may lose tax benefits such as low-income housing or work opportunity credits because of the AMT.

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How to File an Amended Tax Return?

Amended Tax Return

Filing federal and state income taxes is not as simple as you would believe. It’s all too easy to make minor errors on a tax return, such as reporting income incorrectly. Here’s what to do for filing an amended tax return and the steps you need to take.

What is an Amended Tax Return?

An amended tax return is a form provided by the IRS for making changes to a prior year’s tax return. An amended return can be used for a variety of purposes, including correcting errors and requesting a refund. Depending on the sort of inaccuracy you report, amended returns might either boost or decrease your refund. Correcting misreported earnings or tax credits is an example of an amended return. Keep in mind that when attempting to fix mathematical errors, an amended return is not required; the IRS will automatically correct any mathematical inaccuracies.

How it Works?

Amended Tax Return

Every taxpayer is obligated to file their taxes for the preceding year on an annual basis. A taxpayer may discover after filing their taxes that they made a mistake on their tax return and that it has already been accepted. The Internal Revenue Service (IRS) has offered these taxpayers an alternative in this situation. Form 1040 is used to file a regular tax return; however, Form 1040X, which may be found on the IRS website, is used to file an updated return.

As previously stated, mathematical errors are not noted on amended tax returns because the IRS corrects them. After correcting the mathematical inaccuracies, the IRS will simply modify your tax liability and refund proportionately. A letter will be sent to an individual requesting any missing forms or documents in their return.

Reasons to File an Amended Return:

The reasons why a taxpayer should file an amended tax return are as follows:

  • If your filing status for the tax year changed or was entered improperly. For example, if a married couple filed jointly then divorced on the last day of the tax year, they must amend their return and file as either head of household or single.
  • You may amend your return if you recorded the incorrect number of dependents on your return. If you need to add extra dependents, you can file an amended return.
  • You may amend your return if you misreported any claimed tax deductions or credits, or if you did not claim them at all.
  • You may file an amended return for additional income if the income you stated on your tax return for the year was incorrect, or if you get additional tax documents such as a Form 1099 after the tax deadline.
  •  If you discover that the tax you paid is less than what you owe, you can file an amended return. You will avoid any IRS penalties as a result of this.

Filing an Amended Tax Return:

Amended Tax Return

Form 1040X is more difficult to file on your own since it requires you to list all and any changes made to the return, even changes made by the IRS to your original return after it has been processed. The original amount is reported in Column A, the net difference between Column A and Column C is reported in Column B, and the corrected amount is reported in Column C. Many questions and lines on Form 1040X require accurate information, as well as an explanation of the adjustments being made. For the average taxpayer, all of this is difficult and time-consuming, which is why we recommend contacting a Tax Preparer or a Miami Tax Accountant who can guide you through the process and do your taxes for you.

When mailing your amended return to the IRS, it is recommended that you include specific documents. To avoid IRS audits, attach documentation that clearly proves and justifies the adjustment you’re making on your return.

This form cannot be e-filed since it is mailed directly to an IRS agent for processing and acceptance of the return. This implies it could take up to 3 weeks for it to appear in the IRS system after you mail it. Processing the return can take up to 16 weeks after that. On the IRS website, you can check the progress of your amended tax return.

Contact SDG Accountant for assistance with amended returns, and our tax preparers and bookkeepers will file your return for you as soon as possible.

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How to Apply for Currently Not Collectible (CNC) Status from the IRS?

Currently Not Collectible (CNC)

Every American is required by the IRS to file their taxes each year, with the assumption that they will pay their tax obligation immediately after filing. The majority of taxpayers file and pay their taxes on time, however, some do not. According to records, approximately 5 million people fail to pay their taxes, and approximately 3 million set up payment plans and agreements, but what about the remaining taxpayers? They apply to the IRS for the Currently Not Collectible Status (CNC) in order to avoid the payments.

What is the Currently Not Collectible (CNC) Status?

The IRS determines that a taxpayer does not have the resources or ability to pay their taxes using the Currently Not Collectible (CNC) Status after a thorough inquiry. This status protects taxpayers from IRS penalties and allows them to avoid paying any taxes. This status allows you to talk with the IRS about your situation so that they may check all of your financial information and, if necessary, put you on a payment plan or grant you CNC status.

Before moving on to the next phase, you must have proof that you are unable to pay those taxes. The IRS requires Form 433-F, also known as the Collection Information Statement, to certify your CNC eligibility. This form can be filed to the IRS either by handing it over to an IRS Revenue Officer or by using the IRS Automated Collection System Unit. There’s a better likelihood the IRS will approve the taxpayer’s request for CNC status if they don’t have any assets that the IRS may seize instead of the money. If the IRS approves your inability, you may be eligible for CNC status.

What Happens after I am stated as Currently Not Collectible?

After the IRS has granted you CNC status, the IRS will cease all tax collection activities, including levy and wage garnishment, as well as any other types of activity that involve collecting money from you. You will still receive an annual statement from the IRS detailing the amount of unpaid tax, but it will not be considered a bill, and you will not be required to pay any of it.

If the CNC status is maintained for more than ten years, all taxpayer debts will expire and become non-payable. During those ten years, however, all of the limitations of the 10-year statute remain in effect.

Keep in mind that before approving your request for an IRS payment plan, the IRS will try all possibilities. They look into all of your living expenses and monthly payments to see if there is any way out. They can also set payment limits, for example, if you have a $1,300 monthly auto payment, the IRS can decrease it to $500 so you can pay your taxes.

How to Achieve the IRS Currently Not Collectible (CNC) Status?

Currently Not Collectible

Getting in touch with a Miami Tax Accountant and discussing your concerns with a tax professional is the simplest way to obtain IRS CNC status. Make sure you get an experienced tax professional who has dealt with similar scenarios in the past. You can also submit a direct application using Form 433-F. However, you should first speak with a tax specialist who can help you locate the best scheme for you.

Information Required to Request IRS CNC Status:

To confirm your eligibility for CNC status, the IRS requires a collection of documentation. The following are the documentation you’ll need to show to the IRS:

  • Copies of the most recent pay stubs for each job for the previous month
  • Copies of the most current statements showing all monthly income received
  • Copies of all owned properties’ most recent real estate tax bills
  • All utility bills (copies)
  • Copies of the lease and mortgage bills
  • Copies of all monthly expenses, evidence of assets, and recent credit card payments

Next Steps:

If you’re in a bad financial situation, here are all of your options:

  1. Consider CNC status
  2. If you can resolve the debt in any way, consider an offer in compromise (settlement with the IRS)
  3. If you’re still stumped, seek advice from a tax professional.

It is a tax professional’s job to be extremely aware of all IRS notices and penalties. To learn more about your possibilities, speak with a Tax Preparer in Miami. SDG Accountants are tax specialists with a lot of experience dealing with IRS notices and fines.

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