Enrolled Agent Continuing Education Aids in Explaining the AMT

The Alternative Minimum Tax (AMT) sneaks up on unsuspecting taxpayers who then need advice about how to avert it in the future. This requires having some understanding of how the tax works and why only some taxpayers are subject to it. Fortunately, enrolled agents can take advantage of these situations as opportunities to expand their tax practices.

People want experts to explain particularly complex tax subjects. By promoting the knowledge you retain from enrolled agent continuing education, you certainly qualify as an expert to the public. The AMT is a separate tax system from regular income tax. Under the AMT, tax is calculated according to a distinctive set of rules regarding income and deductions. When the tax determined using AMT rules is higher than tax assessed under the regular tax system, taxpayers owe the additional amount.

The ethics CPE of tax professionals teaches you to assess all tax payable, including any for the AMT. Any taxpayer owing tax due to the AMT who doesn’t pay is liable for penalties and interest. An enrolled agent should calculate potential AMT for all taxpayers with income above $75,000 having a lot of personal exemptions or deductions.

An enrolled agent studies the AMT process in a CPE course. The AMT is calculated by completing IRS Form 6251, which adds disallowed deductions and extra income to the regular income tax calculation. Some of the likely situations where taxpayers owe AMT involve exercising of incentive stock options, ownership of a vacation property, and holding extensive investment interests.

The AMT disallows deduction of interest on home equity loans. Also disallowed under the AMT is investment interest expense that exceeds investment income other than interest and dividends.

Items counted as income under the AMT but not the regular tax system include the market gain on incentive stock options, interest earned on private activity bonds, and gains on the sale of qualified small business stock.

Because the AMT is a completely different tax system, it affects carry forward losses and basis. Therefore, an enrolled agent is valued for maintaining records a taxpayer will eventually require. For example, stock acquired by exercising incentive stock options may have a different basis under the AMT when sold. The AMT also reduces the deduction of passive activity losses and thus the loss carried forward to the time of property disposition.

These situations create long-term relationships between taxpayers and enrolled agents in order to accurately make future AMT adjustments.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.