The alternative minimum tax (AMT) is calculated alongside regular income tax and is intended to prevent taxpayers from paying too little income tax after utilizing various tax minimization strategies. 

Since AMT is eliminated for C corporations for tax years beginning in 2018, this article will focus on pass-through entities such as S corporations and partnerships.

For regular income tax calculations and depending on the levels of gross receipts, contractors may use the completed-contract method (CCM) or other recognition methods like the cash method to account for long-term contracts. While either the CCM or cash method is permitted for long-term home construction contracts (HCCs) for AMT purposes, neither method is approved for calculating alternative minimum taxable income (AMTI) for other long-term commercial construction contracts.

Small contractors that use accounting methods other than the percentage-of-completion method (PCM) are generally required to recalculate their long-term contracts using PCM to determine AMTI. Thus, contractors can use more favorable tax reporting methods for regular tax purposes but must generally use the PCM for AMT purposes. While this diminishes the tax benefits of the CCM, it does not eliminate the benefit – which is why many contractors are willing to face the AMT’s complex machinations.