Most of us have heard the acronym AMT. Most of us have no idea what it is… but yet we’ve heard it used with disdain and therefore assume that “AMT” can’t be something good. In general, that assumption is correct... But it wasn’t always the case.
The original idea behind AMT, or “Alternative Minimum Tax” was to prevent people with very high incomes from using tax benefits to pay little to no tax. The idea was to make taxes more fair and equitable. Unfortunately, the tax code that was written for AMT isn’t tied to inflation or any other adjusting measure. The result has been that, over the many years that the tax code for AMT has been in place, more and more taxpayers have been pulled into the vortex of AMT – and they are subject to paying additional tax when filing their return.
The name explains what AMT is... Alternative means that it is providing an “alternative” set of tax rules to calculate income tax that will result in a “minimum” amount of tax liability being assessed for a taxpayer. The AMT is a parallel or ghost recalculation of your income tax but with the limitation or elimination of reductions or deductions to your taxable income and credits, known as “tax preference” items. These are tax benefits and deductions that Congress has decided to give and then take away from you, if you are impacted by AMT. Taxpayers calculate their taxes regularly, as well as the AMT and pay whichever amount is higher. There is some good news though – at the end of the day or, in this case, after calculating your “AMT” you may not owe any additional tax because you already have had enough withheld from your regular income tax.
Nevertheless, the calculation of AMT is a laborious and confusing process that should be prepared either with the use of quality software or a tax professional.
For more information about AMT, please see Form 6251 and the Form 6251 Instructions or contact your local Liberty Tax Service Office.
Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.