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Lesson 9. Taxes and Options > Long-Term Capital Gains - Pg. 45

Taxes and Options 45 The AMT rules eliminate or reduce many of the deductions available under regular income tax rules. If your tax bill is higher under regular income tax rules, you do not have to pay AMT. However, if your tax bill is higher under AMT rules, you must pay your regular income tax plus the difference between AMT tax and regular income tax. For example, suppose you compute your income tax under regular rules and find you must pay $28,000 in taxes. When you compute your tax under AMT rules, the tax bill is $34,000. What is your tax liability? Tax under regular rules: Tax under AMT rules: Your tax liability is: $28,000 $34,000 $28,000 regular income tax $6,000 AMT tax $34,000 total tax Unlike regular income tax brackets, the AMT only has two rates: 26 percent and 28 percent. Many situations can trigger AMT, so there is no way to know exactly when AMT comes into play on your return. One item or the combination of several items may trigger the tax. Since this is not a guide to taxes, I won't explore every one of them. Broadly stated, if you have significant deductions and credits on your regular tax return, you may be a candidate for AMT. Two items relating to employee stock options in particular on your return may trigger the AMT: long- term capital gains and incentive stock options. Long-Term Capital Gains