Alternative Minimum Tax - Application to Businesses and Trusts
Application to Businesses and Trusts
Small businesses are given an AMT exemption under three circumstances:
- All corporations are exempt in their first year of existence,
- The corporation will be exempt in their second year if gross receipts were less than $5,000,000 in the first year and
- The corporation will be exempt in the third year and years going forward, if average annual gross receipts for all prior three-year periods are less than $7,500,000.
Once the business fails the gross receipts test, it will be subjected to AMT going forward.
S-Corporations are pass-through entities, so they are not subjected to AMT at the entity level.
C-Corporations are typically larger companies and are subjected to the AMT (Form 4626) if taxable income for regular tax purposes, in combination with any preference and adjustment items, exceeds $40,000.
For the exam, you'll need to know that corporate owned life insurance will affect the AMT of a C-Corporation. If a key employee dies and life insurance is paid to the corporation, it can be taxed up to 15%.
If you're the beneficiary of a trust or estate, your share of AMTI will be shown on Schedule K-1 and will be your responsibility to include with your individual tax filing. The estate or trust will be responsible to pay tax on any remaining AMTI.