Finance and capital markets
- Basics of US income tax rate schedule
- Tax deductions introduction
- AMT overview
- Alternative minimum tax
- Estate tax introduction
- Tax brackets and progressive taxation
- Calculating state taxes and take home pay
- Marriage penalty
- Married taxes clarification
The basics of the alternative minimum tax. Created by Sal Khan.
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- This is not an accurate example of how to calculate the AMT as it stands today. First of all for 2012 the filing single exception is $48,450. This does not mention the differences in exemption for married filing jointly and married filing separately, being $74,450 and $37,225 respectively. It also fails to mention that the exemption is reduced by 25% for each dollar over certain amounts; $$150,000 for joint filers and & $112,500 for singles ( this is a major part of the AMT for high income individuals). It also fails to mention that the 26% rate is only applied to the first $175,000 of the tax base with the excess being taxed at the 28% rate. These facts are crucial on calculating the AMT for high income individuals and should not be left out.(0 votes)
- Any tax practitioners here willing to explain how offshore tax havens are used to avoid tax?(3 votes)
- Because, accounts in other countries might have lower tax rates, so you can pay lower tax rates by storing your money abroad.(7 votes)
- What's the difference between deductions and tax credits?(3 votes)
- Deduction is taken out of your income where as tax credits is subtracted directly from your taxes. For example, lets say your income is 10,000 and your tax rate is 10%.
If I give you a deduction of 1000,
taxable income is (10,000 - 1000) = 9000
Taxes = 9000 x 10% = 900
Post tax income = 10,000 - 900 = 9100
On the other hand, If I gave you a tax credit of 1000, your taxable income would still be 10,000. So the taxes you pay would be:
Taxes: 10,000 x 10% = 1,000
Tax credit of 1,000 is taken directly out of your taxes, so you would pay 1,000 - 1,000
Your post-tax income would be 10,000
Of course in the real world the IRS is not that generous with tax credits. That's why tax deduction is a lot more common than tax credits. Another way to think about it is deductions are still affected by your tax rate, where as tax credits are not affected by tax rate. Hope that helps!(5 votes)
- i understand it but i dont get were u got 21720 dollars(2 votes)
- He calculated this exact number in the video ''basics of Us income tax rate schedule''.
- At minute0:36Sal says: "The first 47 thousand or so.... is exempt when you calculate the alternative minimum tax". Does Sal refers that if one person earn less than this 47 thousand dollars per year, he/she is not required to pay the alternative minimum tax? If this is the case then that person only needs to pay his/her regular taxes, right?(3 votes)
- why not exchange the AMT for the current complex tax code?(2 votes)
- Does the AMT apply just to individuals or is there also an AMT for businesses and other types of organizations?(2 votes)
Let's see if we can shed some light on the Alternative Minimum Tax, which is also one of the most confusing aspects of taxation in the U.S., but hopefully this video will clarify things a little bit. So let's go back to that example from the first video of the person making $100,000 and what I'm going to do is I'm going to calculate the AMT, the Alternative Minimum Tax for that person then we're going to see what happens from there. So Alternative Minium Tax for someone making $100,000, so what I've drawn right over here, this applies if you make less than $300,000. The first 47,000 or so is exempt when you're calculating the Alternative Minimum Tax. So for this person making $100,000, we're just going to have to consider the balance above 47,450. So 100,000 - 47,450, would be what? It would be 50 ... It would be 52,000 ... Let's see, this would be ... So this amount right over here is going to be 52,000 and then 6 or 550 ... 52,550, if I did my math correct. That's 100,000 - 47,450 and what the Alternative Minimum Tax says is whatever you are above this exemption, above this 47,450 exemption, you're just going to pay a flat 26% on that amount and if this person had made over 175,000, it would have been a flat 28%, but let's not go there, just complicates things and these things can get arbitrarily complicated. And if the person made over 300,000, they would have to use the 28% and this 0, this exemption would disappear, but once again, let's not over complicate it. Let's just focus on this person. So this person has to pay 26% of 52,550 which would be ... So it is .26 x 52,550 gives 13,663. So 13,663. That is equal to 52,550 x 26%. So this would be the Alternative ... Alternative Minimum Tax calculation, this 13,000. You're like, "Okay, that's not so bad." "Do I pay this above and beyond the 21,000" "that we calculated in the first video?" "You know, how does this work out?", and the answer is no. You ... The IRS or your accountant would look at both of these numbers and you would pay the higher of the two. So in this situation, your regular taxes are higher than your Alerternative Minimum Tax, so you would just pay your regular taxes. Now this does come into play in situations where 1) if someone is making a ton of money, the AMT is probably going to be the larger number, but in general it would be the larger number if this person has a lot of deductions. So let's say they made $100,000, but they're able to take ten grand off because they have ... They have mortgage interest that they can deduct, so maybe they have all sorts of other crazy deductions. So that their actual reported income to the IRS becomes, I don't know, well maybe it becomes nothing. Maybe they're able to deduct everything. So that with the regular taxations, it goes down ... the reported income. When I say deductions, remember, I'm not deducting taxes, I'm reporting income. So they're able to keep taking things off of this until eventually ... Well, I won't say nothing, maybe their reported income becomes $8,350. In which case, the regular taxes would only be $835. And in this situation, they would have to pay the 13,663 and that's the whole point of the AMT is because you had the situation where people had all these deductions and were able to get out of paying taxes even though their income was pretty high, so they had this alternate calculation to just make sure that people do pay some taxes.