It is mandatory to pay taxes in most countries, but how they are collected may differ from country to country. In the case of the United States, the Alternative Minimum Tax (AMT) is offered.
This is different from income tax but serves the same purpose of determining how much is owed. The AMT was incorporated for businesses and corporations to pay the appropriate tax annually.
How can I claim the AMT credit?
Through the AMT, you can get a refund of a portion of the taxes you have been paying over the years. But to do this correctly, you must follow up on your credit annually to ensure you get a refund.
It is recommended that you review your tax returns annually to determine whether you have paid AMT. Also, check to see if you have claimed your credit in previous years in case you have a balance left over for the current year.
To claim your credit, you must claim it simultaneously with your tax return. You do this by filing IRS Form 8801.
What is the AMT credit limit that I can claim?
You should know that it is impossible to claim 100% of the taxes paid in AMT. The limit you can claim depends solely on the difference between your alternative minimum and standard taxes. These are calculated annually.
Because of this, there is no specific figure for the limit you can claim, but you can calculate it based on your data.
What is IRS Form 8801?
Individuals filing this form must have a trust or estate. This is used so that in case there is a minimum tax credit, it is calculated through AMT.
In addition, they must have had an unallowable qualified electric vehicle credit, an AMT liability with no exclusion items, or a credit carryover to 2022 to complete this form. Upon meeting all of these terms, you can download the form and proceed to fill it out.
It is made up of 3 parts. Part 1 is Net Minimum Tax on Exclusion Items, Part 2 is Minimum Tax Credit and Carryforward to 2023, and Part 3 is Tax Computation Using Maximum Capital Gains Rates.
Between all the parts, there are 55 lines, and in some of them, you will have to compute amounts with spreadsheets, so you must be careful when filling out this form.
How can I calculate my AMT?
The math can become very cumbersome if done manually, so today, free tax programs like Turbo Tax Home or user-friendly calculators will work that out for you.
Turbo Tax Home
When using Turbo Tax, you will be asked, “Did you exercise and hold Incentive Stock Options During the Tax Year?” to which you must answer “No”.
After that, you will need to pull your tax base according to the total amount of state and federal taxes. Now, enter the ISO exercise, and you will be asked the same question and should answer “Yes“.
Then, thanks to IRS Form 3921, enter the exercise’s price, fair market value, and the number of shares. Once these amounts are entered, the taxes will be updated automatically.
If there is a difference between your base and updated taxes, it will become your AMT tax. Should you want a cash advance, notify your ESO partner of the difference you have been left with.
ATM Calculator
There are many calculators available today that, with a few pieces of information, will allow you to calculate your ATM. The first thing you should do is enter the total tax. Then enter the standard deduction for the previous year and subtract it.
After that, according to your marital status, calculate the regular income tax and, from the FMV, exercise price and several options, the ISO differential.
This ISO differential adds to the total income. Now you have obtained the alternative minimum tax income (AMTI) from which you must subtract the AMT exemption. Finally, you can calculate the AMT amount with the amount obtained from the previous step and your filing status.
If the AMT is greater than the regular income tax calculated, you will have an AMT credit amount. Otherwise, if there is no difference between these amounts, you will not be able to claim any credit.