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Current time:0:00Total duration:3:55

Video transcript

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 and in the US but hopefully this this video will 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 and then we're going to see what happens from there so alternative minimum tax for someone making $100,000 so what I've drawn right over here this applies if you make less than three hundred thousand dollars the first forty seven thousand or so is exempt when you're calculating the alternative minimum tax so for this person making a hundred thousand dollars we're just going to have to consider the balance above forty seven thousand four hundred fifty so a hundred thousand minus forty seven thousand four hundred fifty would be what it would be fifty it would be 52,000 let's see this would be so this amount right over here is going to be fifty two thousand and then six or five hundred and fifty fifty two thousand five hundred fifty if I did my math correct that's a hundred thousand minus forty seven thousand four hundred and fifty and what the alternative minimum tax says is whatever you are above this exemption above this forty seven thousand four hundred fifty exemption you're just going to pay a flat twenty six percent on that amount and if this person had made over seventy one hundred seventy five thousand it would have been a flat twenty-eight percent but let's not go there just complicates things and these things can get arbitrarily complicated and if the person made over three hundred thousand they would have to use the twenty eight percent and this is zero this exemption would disappear but once again let's not overcomplicate it let's just focus on this person so this person has to pay twenty six percent of fifty two thousand five hundred and fifty which would be so it is 0.26 times fifty two thousand five hundred and fifty gives thirteen thousand six hundred sixty-three so thirteen thousand six hundred and sixty-three that is equal to fifty two thousand five fifty time's 26% so this would be the alternative alternative minimum tax calculation this 13,000 you're like a 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 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 alternative minimum tax so you would just pay your regular taxes now this does come into play in situations well one if someone is making a ton of money the AMT is probably going to be the larger number but it in general be the larger number if this person has a lot of deductions so let's say they made a hundred thousand dollars but they're able to take 10 grand off because they have they have mortgage interest that they can deduct 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 are 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 the reported income becomes eight thousand three hundred and fifty dollars in which case the regular taxes would only be eight hundred and thirty five dollars and this situation they would have to pay the thirteen thousand six hundred and sixty three and that's the whole point of the AMT is because you had the situation where people had all these deductions and we're 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