How to Figure Alternative Tax & Net Operating Loss Deductions
- 1). Calculate your taxes using the traditional tax system. Fill out Form 1040 or 1040A (short form) individual income tax return. You will probably need to fill out one or more additional schedules, including Schedule A, Itemized Deductions and Schedule C, Profit or Loss from Business, and Schedule D, Capital Gains and Losses.
- 2). Download the Alternative Minimum Tax return, Form 6251, from the IRS's website (see "Resources"). Follow the instructions and proceed through the form, line by line, to figure your alternative minimum tax.
- 3). Calculate your Net Operating Loss, or NOL. You have an NOL whenever business deductions are greater than business income and nonbusiness income. Calculate your NOL using Schedule A of IRS Form 1045, Application for Tentative Refund. Start with your taxable income, adding back the personal exemption deduction and any deductions for net capital losses in excess of $3,000. Add back nonbusiness deductions to the extent they are greater than income received from nonbusiness activities. Your NOL deduction can be up to 90 percent of your income under AMT rules. This can potentially result in a significant reduction in your AMT tax liability.
- 4). Compare your income tax due on your Form 1040 or Form 1040A with the tax due on Form 6251. You must pay the higher of the two amounts.
