On February 26, 2014, the Ohio Senate passed bill S.B.243 that authorizes an annual three-day sales tax holiday the first Friday in August. The bill covers items such as computers (less any manufacturer’s rebate) costing $1,000 or less, computer supplies (less manufacturer’s rebate) costing $750 or less, clothing costing $100 or less, school supplies costing $20 or less and school instructional materials costing $20 or less. The legislation was co-sponsored by Senators Faber, Hit, Hughes, Jones, Lehner, Obhof, Oelslager and Schaffer. The bill now goes to the House for approval.
Have you ever wondered what is “alternative minimum tax” and how it affects you? To answer the first question, alternative minimum tax, AMT for short, was enacted in 1969 as an attempt to make sure that wealthy taxpayers – usually taxpayers having the largest tax deductions – paid at least a “minimum” amount in tax. However, middle income taxpayers soon found themselves subject to the tax because Congress had failed to inflation index the AMT exemption brackets (exemption brackets are per filing status, dollar based thresholds used to exempt taxpayers from the tax). In 2013, Congress finally passed an AMT fix by permanently inflation indexing the brackets.
So does AMT affect you? You may be subject to AMT if you have taxable income, plus certain deductions, exceeding your AMT exemption bracket. For 2013, the exemption bracket for Single or Head of Household filers is $51,900. If you file Married Filing Joint or Qualifying Widow(er), the exemption is $80,800. For Married Filing Separate, the exemption is $40,400.
The rules for calculating AMT are complex. However, in a nutshell, you begin with taxable income as computed under regular tax rules and add back certain Schedule A deductions (like state and local income taxes, investment interest expense, certain home mortgage interest, etc.) and other deductions like net operating losses, certain depletion and depreciation expenses, etc. You then compute the amount of alternative tax that would be due on the AMT taxable income. If the alternative tax is higher than the regular tax, you pay the alternative tax. In other words, if the amount of tax you owe under normal tax rules is not high enough, you must pay the higher alternative tax.
You should contact your tax or legal advisor if you would like more guidance on how AMT affects you. In addition, the IRS provides an AMT Assistant tool to help you assess.