Newspaper article THE JOURNAL RECORD
Alternative Minimum Taxes / Changes Hit Firms Reporting Book Income above Taxable Income
Even corporations that never had to worry about alternative minimum tax will likely have to be concerned with the computation beginning in 1987, he said. Specially targeted for alternative minimum tax liabilities are corporations reporting book income significantly in excess of taxable income.
Although December 31 is quickly approaching, Greenwell said there is still time to reduce or eliminate a corporation's alternative minimum tax expense. A review of the new corporate alternative minimum tax computation will be necessary, however, before a company may begin to minimize this tax, he stressed.
The purpose of the alternative minimum tax is to prevent taxpayers with substantial economic income from avoiding tax through special deductions, exclusion and credits. Further, the alternative minimum tax is a separate, "alternative" method for computing a corporation's tax liablility. Therefore, Greenwell noted, it is only paid if it exceeds a taxpayer's regular tax.
The old "add-on" corporate minimum tax of 15 percent has been replaced for years beginning after 1986, he said. The current alternative minimum tax is similar to the alternative minimum tax imposed for individuals. The corporate alternative minimum tax rate, however, is 20 percent.
Certain adjustments must be made to a corporation's regular taxable income to arrive at its alternative minimum taxable income. Some of these adjustments are as follows:
- One-half of the excess of net book income over taxable income must be added back.
- Depreciation on real property placed in service after 1986 must be computed using the straight line method over a 40-year period. Personal property will be depreciated using 150 percent declining balance method.
- Income from certain long-term contracts must be recomputed using the percentage-of-completing method. …