How to calculate your federal income tax obligation

Rules and practice of the U.S. federal income tax law are examined.

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This is an article in the Federal Income Tax on Individuals Series. How does the U.S. federal income taxation system work? What are the rules for calculating your federal income tax? What is the rational behind the rules? Given the existing rules, what can you to legally minimize your federal income tax? Knowledge of the tax law can save you some real money.
This is CHAPTER 2 of the series.

Federal Income Tax on Individuals in the U.S. Series
II. How to calculate your federal income tax obligation <This Article>
III. What is Gross Income? <A Separate Article>
IV. Above-the-line Deductions <Still in plan>
V. Below-the-line Deductions <Still in plan>
VI. Ordinary Tax Rates v. Capital Gains Tax Rates <Still in plan>
VII. Alternate Minimum Tax <Still in plan>
VIII. Planning for tax avoidance <Still in plan>

Disclaimer: While the Author believes that the information here is accurate in general, the Author does not represent that the information here may be literally relied upon to make tax calculations or legal conclusions.  The U.S. income tax code is complex and contains thousands of sections.  This article should be used to grasp the basic concept, but should not be used to calculate your actual amount of tax obligations.  Please use available tax software,  a tax accountant, or a tax attorney for such purposes.  Notwithstanding such limitations, this article should be helpful for understanding the big picture and for planning for your overall tax strategies.

II. How to calculate your federal income tax obligation

2.1. The federal income tax is the sum of the regular income tax and the alternate minimum tax

Under the current U.S. tax law, the amount of federal income tax that an individual owes in each tax year (which is typically coincides with a calendar year, i.e., from January 1 to December 31 of any year) is the sum of the “regular income tax” and the “alternate minimum tax” (AMT), i.e.,

(federal income tax) = (regular income tax) + AMT.

See Internal Revenue Title (which is Title 26 of United States Code), Subtitle A. “Income Taxes,” Chapter 1 – Normal Taxes and Surtaxes, Subchapter A – Determination of Tax Liability, Part I. Tax on Individuals, § 55 Alternate minimum tax imposed.  The term “alternate minimum” tax is misleading because this tax is really an alternate “additional” tax that is added to the regular income tax.
Oftentimes, the AMT is zero.  The percentage of returns that have an AMT liability has been on the increase over the past years.  7.2 % of the tax returns were affected by the AMT rule in 2008.

2.2. How to calculate taxable income

The calculation of the regular income tax for an individual is defined by a deceptively simple-looking method.  
First, an individual must select a fling status selected from: 

(a) Married individuals filing joint returns and surviving spouses,
(b) Heads of households,
(c) Unmarried individuals (other than surviving spouses and heads of households), and
(d) Married individuals filing separate returns.

Internal Revenue Title (which is Title 26 of United States Code), Subtitle A. “Income Taxes,” Chapter 1 – Normal Taxes and Surtaxes, Subchapter A – Determination of Tax Liability, Part I. Tax on Individuals, § 2 Definitions and special rules defines the various filing statuses.  
If a spouse dies in Year_One (e.g., in 2007), the widow(er) is considered to be married during the tax year of Year_One, and consequently, can file a joint return for Year_One as married individuals.  The deceased spouse’s approval on this return is presumed!  If the widow(er) supports (the precise wording in the code is: “maintains as his home a household which constitutes for the taxable year the principal place of abode of”) a child or a stepchild of the widow(er), the widow(er) is considered a surviving spouse for Year_Two and Year_Three (e.g., for 2008 and 2009 tax returns).  The widow(er) is considered an unmarried individual (other than surviving spouses and heads of households) for Year_Four and beyond unless the widow(er) remarries or qualifies as a head of household.  
“An individual shall be considered a head of a household if, and only if, such individual is not married at the close of his taxable year, is not a surviving spouse,” and satisfies one of the following two conditions: (A) maintains as his home a household of a qualifying dependent unmarried child of the individual or a dependent who qualifies for personal exemptions*, or (B) maintains a household which constitutes for such taxable year the principal place of abode of a parent who qualifies for personal exemptions*. (*note: Refer to the latter part of 2.2. How to calculate taxable income for personal exemptions.)  For details, see  § 2 Definitions and special rules
Second, the individual must determine the “gross income” from his financial data for the tax year.  ”Gross income means all income from whatever source derived” according to Internal Revenue title.  Despite this deceptively simple definition in words, determination of whether any financial gain is income or not is not always straightforward.  Certainly, appreciation of one’s home is not considered an income although this would be a financial gain.  Chapter III. What is gross income?  of this article series addresses this issue in detail.
Third, the individual must determine his “adjusted gross income” from his financial data for the tax year.  Th adjusted gross income is defined by the following formula:
(adjusted gross income) ≡ (gross income) - (above-the-line deductions). 
(note: the triple lines is a definition sign typically used in math.)  

Above-the-line deduction is a category of deduction that the Congress defines by statute, and is codified in Internal Revenue Title (which is Title 26 of United States Code), Subtitle A. “Income Taxes,” Chapter 1 – Normal Taxes and Surtaxes, Subchapter A – Determination of Tax Liability, Part I. Tax on Individuals, § 62 Adjusted gross income defined, subsection (a) General rule.  While the language of § 62 Adjusted gross income defined provides some guidance, determination of whether a financial loss qualifies as an above-the-line deduction item or not is not always straightforward, either.  ”Chapter IV. Above-the-line Deductions” of this article series addresses this issue in detail.
Fourth, personal exemptions are subtracted from the adjusted gross income.  The personal exemptions are defined in Internal Revenue Title (which is Title 26 of United States Code), Subtitle A. “Income Taxes,” Chapter 1 – Normal Taxes and Surtaxes, Subchapter A – Determination of Tax Liability, Part I. Tax on Individuals, § 151 allowance of deductions for personal exemptions.  The personal exemptions are also called “section 151 deductions.”  
According to § 151 allowance of deductions for personal exemptions, each taxpayer and each dependent gets a personal exemption in the amount of $2,000 with the following phaseout provisos described in the table below (i.e., you get to claim less than $2,000 if your adjusted gross income exceeds some threshold amounts).  Dependants are defined in § 152 Dependant defined.  In general, a dependent can be claimed for personal exemptions only in one tax return (For example, a child of a divorced couple can be claimed as a dependent only in the ex-husband’s return or only in the ex-wife’s return.)
 filling status  married individuals filing joint returns a surviving spouse  a head of household other unmarried individuals married individuals filing separate returns
threshold amount $150,000  $150,000  $125,000  $100,000 $75,000 
exemption amount  $4,000 (for 
husband & wife) + 
$2000 x (number 
of other dependents) 
$2,000 + 
$2,000 x (number of other dependents) 
$2,000 +
$2,000 x (number of other dependents) 
$2,000 + 
$2,000 x (number
 of other dependents) 
$2,000 + 
$2,000 x (number of other dependents) 
2% reduction in each personal exemption for every  $1,250 increase in adjusted gross income $2,500 increase in adjusted gross income $2,500 increase in adjusted gross income  $2,500 increase in adjusted gross income $2,500 increase in adjusted gross income
 No personal exemption above $775,000  $1,400,000  $1,375,000  $1,350,000  $1,325,000 
For example, a family of a husband, a wife, and two children filing a joint return for an adjusted gross income of $154,000 would have a total personal exemptions of  $4,000 (for husband & wife) + $2000 x 2 (for the two children), reduced by 2 % x 4 (4 is the rounded up integer for $4,000/$1,250), i.e., $8,000 x 0.92 = $7,360.
However, Congress passed law that reduces the 2 % reduction to 2/3 % for the limited period of the tax years 2008 and 2009 (for returns filed in 2009 and 2010).  Thus, the answer to the above hypothetical question would be $4,000 (for husband & wife) + $2000 x 2 (for the two children), reduced by 2/3 % x 4 (4 is the rounded up integer for $4,000/$1,250), i.e., $8,000 x 0.973333 = $7,787 only for the tax years 2009 and 2010.  Unless Congress acts, the above table controls the personal exemptions in tax year 2011.
Fifth, after subtracting the personal exemptions from the gross income, below-the-line deductions are further subtracted to calculate the taxable income, i.e.,

(taxable income) ≡ (adjusted gross income) - (personal exemptions) – (below-the-line deductions). 

At this point, each taxpayer must elect what type of below-the-line deductions he/she/they will take.  The first choice is “the standard deduction” as the below-the-line deductions.  The second choice is “itemized deductions” as the below-the-line deductions.  
If the standard deduction is elected at this step, the taxable income is given by:
(taxable income) ≡ (gross income) - (above-the-line deductions) – (personal exemptions) – (the standard deduction). 

See Internal Revenue Title (which is Title 26 of United States Code), Subtitle A. “Income Taxes,” Chapter 1 – Normal Taxes and Surtaxes, Subchapter A – Determination of Tax Liability, Part I. Tax on Individuals, § 63 Taxable income defined, subsection (b).  The standard deduction is a fixed amount that depends only on the filing status of the taxpayer and the number of dependents claimed in the return.  The details of the standard deduction is elaborated in  § 63 Taxable income defined, subsection (c).  Congress adjusts the standard deduction and the personal exemptions by passing statutes from time to time. 
The standard deduction is defined as the sum of “the basic standard deduction” and “the additional standard deduction.”  See Internal Revenue Title (which is Title 26 of United States Code), Subtitle A. “Income Taxes,” Chapter 1 – Normal Taxes and Surtaxes, Subchapter A – Determination of Tax Liability, Part I. Tax on Individuals, § 63 Taxable income defined, subsection (c).  Everyone who elects the standard deduction is eligible for the basic standard deduction.  The amount of the basic standard deduction varies depending on the filing status.  See the table below for the amount of basic standard deduction as of 2009:
 filling status  married individuals filing joint returns a surviving spouse  a head of household other unmarried individuals married individuals filing separate returns
 basic standard deduction $6,000  $6,000  $4,400  $3,000  $3,000 
Age over 65 years and blindness qualifies a taxpayer (and his/her spouse in the case of a joint return) for the additional standard deduction.  See the table below for the amount of additional standard deduction as of 2009:
 filling status  married individuals filing joint returns a surviving spouse  a head of household other unmarried individuals married individuals filing separate returns
 for each blind* person $600  $600  $600  $750  $600 
 for each person 65 or older** $600 $600 $600  $750 $600

* See  § 63 Taxable income defined, subsection (f), clause (4) for definition of blindness. 
** The age is measured on the last date of the tax year, which is typically December 31 of the previous year. 

If itemized deduction is elected at this step, the taxable income is given by
(taxable income) ≡ (gross income) - (above-the-line deductions) – (personal exemptions) – (itemized deductions). 

The itemized deductions are financial items or financial transactions that operate to reduce tax liability of the taxpayer.  ”Chapter V. Below-the-line Deductions” of this article series elaborates on below-the-line deductions in the case itemized deductions are elected.  
There is a difference between above-the-line deductions and itemized deductions as below-the-line deductions.  
Qualifying items for above-the-line deductions are always subtracted from gross income to calculate the taxable income.  Qualifying items for itemized deductions are sometimes subtracted from gross income.  Even when an itemized deduction may be subtracted, itemized deductions may also be subjected to a “deductible” (e.g., you might be able to deduce only the amount that exceeds 2 % of your adjusted gross income), may be capped, and/or may be phased out as the adjusted gross income increases.  On top of that, the AMT formula monitors the amount of itemized deductions and may trigger an AMT in some circumstances (at least in 7.2 % of the returns in 2008).

Most tax software compares taxes based on two approaches automatically.  Typically, the tax programs calculates an individual’s tax obligation employing itemized deductions, calculates a corresponding tax obligation employing the standard deduction, then compares the taxable income from the two cases and advises the taxpayer which method to use.  Most taxpayers select one that results in lesser taxable income (perhaps except the most patriotic citizens).

2.3. How to calculate regular income tax

The regular income tax is the lesser of a first amount calculated according to a first method of determining a regular income tax and a second amount calculated according to a second method of determining a regular income tax.  (The idea of imposing a lesser amount as the regular income tax is an opposite idea of the alternate minimum tax (AMT), which is subsequently added to the regular income tax calculated here when some conditions are met.  As discusses above, (federal income tax) = (regular income tax) + AMT. )  Both methods are described below:
The first method of determining a regular income tax is provided in Internal Revenue Title, Subtitle A. “Income Taxes,” Chapter 1 – Normal Taxes and Surtaxes, Subchapter A – Determination of Tax Liability, Part I. Tax on Individuals, § 1 Tax Imposed, subsections (a) – (d).  These subsections provide a first amount for an individual’s income tax liability depending on which of the four filing statuses (discussed above) the taxpayer belongs and the amount of his/her/their taxable income (See 2.2. How to calculate taxable income.).  The table in § 1 Tax Imposed is superseded by a Tax Rate Schedule that Internal Revenue Service publishes annually.  Typing in the words, “tax rate schedule .gov,” into a search engine will most likely to locate the correct table for the applicable tax year.  For example, the Tax Rate Schedule for tax year 2008 may be found at the last page of the publication at http://www.irs.gov/pub/irs-pdf/i1040tt.pdf.  
Four tables corresponding to the four filing statuses are provided in the Tax Rate Schedule.  (A surviving spouse uses the same table as married individuals filing joint returns.)   These four tables share the same percentage numbers for various marginal tax rates, i.e., each or them contains only 10%, 15%, 25%, 28%, 33%, and 35% brackets.  The four tables differ from one another only by the taxable income ranges for each “marginal tax rate brackets” (MTRB), i.e., the 10%, 15%, 25%, 28%, 33%, and 35% brackets. A marginal tax rate bracket refers to a range of taxable income that is subjected to the same marginal tax rate, i.e., how many pennies a taxpayer needs to pay as regular income tax for the last incremental dollar she earns.  Each marginal tax rate bracket has a lower threshold (LT) taxable income and an upper threshold (LT) taxable income.  The tax rate becomes progressive higher in each succeeding marginal tax rate brackets.  The regular income tax according to the first method is the sum of all contributions from each marginal tax rate bracket.  This amount is referred to as a “first amount” for convenience in this article.  (Note that the “first amount” is not a technical term of the IRS.)  The taxable income can be zero (through deductions and exemptions) even if gross income is non-zero because of deductions and exemptions.  This happens to over 30% of all filers.  See http://www.taxfoundation.org/research/show/1410.html.  The picture below graphically illustrates the process of calculating the first amount. 
Picture above: An individual’s regular income tax by the first method is illustrated graphically.  The gross income is represented by the horizontal arrow at the top and the sum of the green area, the blue areas, and the white areas.  Exemptions and deductions are subtracted from the gross income using one of the two methods as described in 2.2. How to calculate taxable income above to calculate the taxable income that corresponds to the sum of the blue areas and the white areas.  A regular income tax by the first method is then calculated by adding appropriate fractions from each marginal tax brackets and adding them up. 
The lower threshold (LT) taxable income and the upper threshold (LT) taxable income for each marginal tax rate bracket (MTRB) varies depending on the taxpayer status.  This variation reflects policy choices that the Congress made.  The table below compares the lower threshold (LT) taxable income and the upper threshold (LT) taxable income across the various taxpayer statuses.
Comparison of the threshold taxable income amounts across various filing statuses for tax year 2008
 filling status  married individuals filing joint returns and surviving spouses a head of household single individuals
(=other unmarried individuals)
married individuals filing separate returns
upper threshold of 10% MTRB
(=lower threshold of 15% MTRB)
$16,050  $11,450  $8,025 $8,025 
upper threshold of 15% MTRB (=lower threshold of 25% MTRB)  $65,100 $43,650 $32,550 $32,550
upper threshold of 25% MTRB 
(=lower threshold of 28% MTRB)
 
$131,450 $112,650  $78,850 $65,725
upper threshold of 28% MTRB (=lower threshold of 33% MTRB) $200,300  $182,400 $164,550  $100,150 
upper threshold of 10% MTRB (=lower threshold of 15% MTRB)   $357,700  $357,700   $357,700 $178,850 
 
The 2008 Tax Rate Schedule comes with a warning:

The Tax Rate Schedules are shown so you can see the tax rate that appliesto all levels of taxable income. Do not use them to figure your tax. Instead,see the instructions for line 44 that begin on page 36.

The reason for this warning is that the Tax Rate Schedule published by the IRS enables calculation of only the first amount calculated according to the first method of determining the regular income tax.  The second method that may reduce the individual’s tax liability has yet to be discussed.  Further, because the federal income tax is the SUM of the regular income tax and alternate minimum tax, the taxpayer has yet to determine if he is subject to any alternate minimum tax, in which case his tax liability will increase!

The second method of determining a regular income tax is provided in Internal Revenue Title, Subtitle A. “Income Taxes,” Chapter 1 – Normal Taxes and Surtaxes, Subchapter A – Determination of Tax Liability, Part I. Tax on Individuals, § 1 Tax Imposed, subsection (h) Maximum capital gains rate.  The language of the code states “If a taxpayer has a net capital gain for any taxable year, the tax imposed by this section for such taxable year shall not exceed the sum of…”  Thus, if a taxpayer does not have any “net capital gain,” this section is inapplicable and the first amount calculated according to the first method of determining the regular income tax is his regular income tax for that taxpayer without further modification.  If the taxpayer had any “net capital gain,” the taxpayer has a shot at reducing his regular income tax.  This is not a guarantee of reduction, but a chance for a reduction if the numbers come out in his favor.  But then, what is “net capital gain”?
The “net capital gain” is defined in Internal Revenue Title, Subtitle A. “Income Taxes,” Chapter 1 – Normal Taxes and Surtaxes, Subchapter A – Determination of Tax Liability, Part I. Tax on Individuals, § 1222 Other items relating to capital gains and losses, subsection (11).  For now, it suffices to state that the Congress defines the types of incomes that may be included in the net capital gain.  As the name suggests, such incomes are derived from capital, i.e., the income is generated primarily by virtue of someone’s holding a capital asset, for example, an apartment building for rent purposes or stocks that generate dividends.  The Congress classifies the sum of “net capital gain” and “dividends” into three distinct categories of “adjusted net capital gain,” “28-percent rate gain,” and “unrecaptured section 1250 gain.”  These are defined in § 1 Tax Imposed, subsection (h) Maximum capital gains rate.  In summary, thee distinct capital-derived incomes enter into the formula for the second method:

(adjusted net capital gain) = (net capital gain) + (dividends) – (28-percent rate gain) – (unrecaptured section 1250 gain);
(28-percent rate gain); and
(unrecaptured section 1250 gain).

What type of income qualifies as which component of the net capital gain requires detailed discussion, and is dealt with in “Chapter VI. Ordinary Tax Rates v. Capital Gains Tax Rates” of this article series addresses this issue in detail.    
A second amount representing the regular tax income according to the second method is the sum of a non-capital income tax component and a capital income tax component.  For the non-capital income tax component, an imaginary taxpayer is hypothesized who has the real taxpayer’s non-capital income but did not have any of his capital income.  A quantity equivalent to the taxable income without including the “net capital gains” is employed for this approximation.  This equivalent quantity is “taxable income reduced by the net capital gain” in most circumstances.  In other words, the calculation proceeds as if the “net capital gains” component of the taxable income did not exist and only the other components of the taxable income existed.  Extraordinary circumstances requiring a different calculation arise when the “taxable income reduced by the net capital gain” happens to be less than the lower threshold of the 25 % marginal tax rate bracket ($65,100; $43,650; or $32,550 depending on the filing status) and also happens to be less than the “taxable income reduced by the adjusted net capital gain” (this is possible only if there is 28-percent rate gain or unrecaptured section 1250 gain.).  Only under such circumstances, the equivalent quantity is the lesser of the lower threshold of the 25 % marginal tax rate bracket and the taxable income reduced by the adjusted net capital gain.  In all circumstances, the non-capital income tax component within the second amount is calculated by applying the formula of the first method (see the embedded picture above) to the equivalent quantity.  
The capital income tax component within the second amount is then calculated using various formulas.  The capital income tax component within the second amount is the sum of the following:

1. a capital income tax subcomponent applied at a rate of 5 % (0% for 2008 – 2010 only) to adjusted net capital gain up to the amount equal to the lower threshold of the 25 % marginal tax rate bracket ($65,100; $43,650; or $32,550 depending on the filing status);
2. a capital income tax subcomponent applied at a rate of 15 % to adjusted net capital gain for the portion that exceeds the lower threshold of the 25 % marginal tax rate bracket;
3. 25 % of the unrecaptured section 1250 gain (This is almost obsolete.  Unless a taxpayer deviated from the mandatory straight-line method, the taxpayer won’t face this subcomponent.)
4. 28 % of on all other remaining untaxed capital gain (this should be equal to the “28-percent rate gain.”)

The apparently high rate (28 %) on the “28-percent rate gain” is applicable primarily to gains from collectibles.  The rational is that the Congress considered use of capital to purchase collectibles to be non-economic, non-job-generating, and undesirable use of capital, and therefore deserves less tax benefits (Hidden message: The Congress wants everyone to spend money to invest and to generate jobs, not on collectibles!)
The second amount (the sum of the non-capital income tax component and the capital income tax component) is compared with the first component.  Whichever is lesser is the true “regular income tax.”  But wait!  There is still the AMT, which may be applicable and works only to increase the tax liability of the taxpayer. 

2.4. How to calculate alternate minimum tax

As discussed above, (federal income tax) = (regular income tax) + AMT.  The best one can hope for here is that AMT turns out to be zero.  
The Tax Reform Act of 1969 created “add-on minimum tax,” a precursor of present day alternate minimum tax to prevent wealthier taxpayers who “exploited” tax preference items (today’s equivalent of itemized deductions) from paying little or no taxes despite their otherwise substantial income.  The Revenue Act of 1987 created “alternate minimum tax” (AMT) to address the same problem.  Between 1987 and 1990, non-zero AMT was imposed only on about 0.1 % of all taxpayers.  Because regular tax rate has decreased since the legislation of AMT and the AMT statutes were not adjusted for inflation, a steadily increasing percentage of taxpayers have been subjected to AMT.  As of 2008, 6.5 % of total taxpayers paid the AMT in 2008 (7.2% were liable for AMT).  The idea of abolishing AMT has been gaining momentum in the Congress.  While it is possible that a congressional action in the near future may repeal the AMT altogether or perhaps modify it significantly, the AMT is currently part of the U.S. tax law.
Internal Revenue Title (which is Title 26 of United States Code), Subtitle A. “Income Taxes,” Chapter 1 – Normal Taxes and Surtaxes, Subchapter A – Determination of Tax Liability, Part I. Tax on Individuals, § 55 Alternate minimum tax imposed defines alternate minimum tax.  An individual taxpayer must calculate her regular income tax using the regular tax formula, and then calculate her “tentative minimum tax” using a tentative minimum tax formula.  For the tax year 2008 and for married individuals filing joint returns and surviving spouses, heads of household, and single individuals, the tentative minimum tax is the sum of 26 % of the “taxable excess” up to $175,000, and 28 % above that amount of the “taxable excess” above $175,000.  For the tax year 2008 and for married individuals filing separate returns, the tentative minimum tax is the sum of 26 % of the “taxable excess” up to $87,500, and 28 % above that amount of the “taxable excess” above $87,500.  The taxable excess is the excess of the “alternate minimum taxable income” over the “exemption amount.”  The exemption amount is $69,950 for married individuals filing joint returns and surviving spouses, $46,200 for heads of household and single individuals, and $34,975 for married individuals filing separate returns.  Further,  § 55 Alternate minimum tax imposed, subsection (b) Clause (3) limits the tentative minimum tax thus calculated is capped to accommodate the advantages of capital gains tax rate in a manner similar (but not the same) as the second method of calculating taxable income.  
The “alternate minimum taxable income” is determined with adjustments in Internal Revenue Title (which is Title 26 of United States Code), Subtitle A. “Income Taxes,” Chapter 1 – Normal Taxes and Surtaxes, Subchapter A – Determination of Tax Liability, Part I. Tax on Individuals, § 56 Adjustments in computing alternate minimum tax income and § 58 Denial of certain losses and increased by the amount of “items of tax preference” described in § 57 Items of tax preference .  Obviously, the calculation of the alternate minimum taxable income is complex.  Also, the upper limit on the tentative minimum tax through § 55 Alternate minimum tax imposed, subsection (b) Clause (3) complicate the calculation of the tentative minimum tax even after the alternate minimum taxable income is calculated.  The good news is that all above-the-line deductions are excluded from the calculation of the AMT, and that only the below-the-line deductions enter the calcultion.  Thus, full description of alternate minimum tax has to be deferred to “Chapter VII. Alternate Minimum Tax” of this article series.

If her regular income tax is greater than her tentative minimum tax, the AMT is zero, i.e., her federal income tax is the same as her regular income tax. 
 

(federal income tax) = (regular income tax), only if (regular income tax) ≥ (tentative income tax).

If her regular income tax is less than her tentative minimum tax, however, the AMT is equal to the difference between her tentative minimum tax and her regular income tax.  In other words, her federal income tax is the same as the tentative minimum tax because

(federal income tax) = (regular income tax) + {(tentative minimum tax) – (regular income tax)} 
= (tentative minimum tax), only if (regular income tax) < (tentative income tax).        

Thus, the “tentative” minimum tax becomes the “finalized” minimum tax that the taxpayer needs to pay if the tentative minimum tax exceeds the regular income tax.  


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