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Duck below the corporate AMT threshold

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in Small Business Tax

Individual taxpayers aren’t the only ones who should fear the dreaded alternative minimum tax (AMT). C corporations also can be blindsided by this stealth tax.

Strategy: If you’re a qualified small corporation, play your “Get out of AMT free” card.

How? Your corporation is exempt from the AMT if its average annual gross receipts for the prior three years didn’t exceed $7.5 million. (That figure drops to $5 million if your business is less than three years old. Brand-new corporations are exempt from the AMT.)

One study found that 93 percent of small corporations are exempt from the AMT. But because they’re not aware of the exemption rules (and because the AMT is so complex), many mistakenly pay the corporate AMT anyway.

How it works: The corporate AMT is similar to the individual AMT, except it applies to a broader income spectrum with fewer deductions. Your company must pay the corporate AMT if the “tentative tax” calculation is higher than the regular tax calculation. The tax rate on corporate AMT income is 20 percent.

The corporate AMT often turns into a timing game, since corporations can take an AMT credit against regular taxes in future years.

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