Corporations are subject to an Alternative Minimum Tax (AMT) in much the same manner that individuals are.
If the AMT results in a tax liability known as the “tentative minimum tax,” that exceeds the regular tax liability, the taxpayer must pay the larger tentative minimum tax.
In general, the AMT:
- Accelerate the recognition of income,
- Slow down the deduction for certain items
- Eliminate certain deductions completely.
Adjusted Current Earnings (ACE) adjustment: One of the objectives of the AMT is to force corporations that show large income to shareholders on their financial statements and little or no income on their tax return to pay a minimum amount of tax each year. The ACE adjustment is 75% of any applicable ACE adjustments, since AMT income is both added and subtracted to these adjustments in determining ACE.
An NOL carryover may not offset more than 90% of alternative minimum taxable income.
Exemption for Small Corporations and new corporations
- Corporations with average annual gross receipts for all 3-tax-year periods ending before its current tax year that did not exceed $7.5million (or $5 million for the corporation’s first 3-tax-year period)
- A new corporation is not subject to the AMT in its first year, since it has no gross receipts history.
Unlike the individual AMT credit, any AMT paid by the corporation during the year qualifies as a credit; the credit is not just limited to timing differences as was true with individual taxpayers.
I created this blog to help understand certain basic aspects of U.S. tax law. Of course, each situation is unique and nothing that is on this site will ever replace the expert advice of a tax professional.
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