Arthur Wesson, an unmarried individual who is age 68, reports taxable income of $510,000 in 2018. He reports positive AMT adjustments of $80,000 and preferences of $35,000. Arthur itemizes his deductions, and his regular tax liability in 2018 is $109,390.

Click here to access the exemption table. Do not round computations, but round your final amounts to the nearest dollar.

a. Arthur's initial AMT exemption amount for 2018 is $, since his filing status is single. However, the exemption is ____ at a rate of 25 cents on the dollar when AMTI exceeds $. Therefore, Arthur's total AMT exemption will be $.

A graduated, two-tier AMT rate schedule applies to individual taxpayers. A ____% rate applies to the first $191,100 of the AMT base, and a _____% rate applies to the AMT base in excess of $191,100.

Compute Arthur's AMT for 2018.

Arthur's taxable income (before personal exemption)
Equals: AMTI	$
Less:
Equals: AMT base	$
Tentative AMT	$
Regular income tax liability	$109,390
AMT	$

b. What is the total amount of Arthur's tax liability? $

c. Complete the letter explaining to Arthur why he must pay more than the regular income tax liability.

Young, Hoffman, Raabe, Maloney, & Nellen, CPAs 5191 Natorp Boulevard Mason, OH 45040

February 4, 2019

Mr. Arthur Wesson 100 Colonel's Way Conway, SC 29526

Dear Mr. Wesson:

As you requested, we have calculated your total Federal tax liability for 2018. The total amount is $. This consists of the regular income tax liability of $109,390 and the alternative minimum tax (AMT) liability of $. The calculation of the regular income tax liability appears on Form 1040.

Because this is the first year you have been subject to the AMT, I thought I should comment on this additional tax. The calculation of the AMT appears on Form 6251. The AMT a parallel income tax system. Its purpose is to provide assurance that no taxpayer with substantial economic income can avoid significant tax liability by using exclusions, deductions, and credits. As indicated on Form 6251, some of the exclusions and deductions on your Form 1040 are on your Form 6251. These items increase your regular taxable income amount and, as a result, make you subject to AMT for the 2018 tax year.

I would like to work with you to minimize your AMT in the future. Because this is our first year to do tax compliance work for you, we may be able to incorporate some tax planning to reduce your Federal tax liability. Please call me so that we can schedule a meeting at a time that is convenient for you.

Sincerely,

Samantha Ash, CPA Partner