Are you a taxpayer with a high economic income? Then you might have been the victim of a surprise attack from the spectre of taxes known as AMT or the "Alternative Minimum Tax". Many a taxpayer has anticipated a refund only to grimace in pain after calculating their AMT to find that they owe additional taxes instead. It isn’t pretty, but this is the essence of AMT. The essence of this alternative tax calculation is to ensure that everyone, particularly the most affluent taxpayers, pay at least some minimum level of tax.
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.
Since the AMT isn’t indexed for inflation, unlike many areas of the tax code, the odds increase every year that you may be subject to this spectre of a ghost tax. Today, the AMT is increasingly penalizing middle-income taxpayers by impacting their deductions and credits. You could be at greatest risk if you are married, have children, and itemize your deductions, particularly those from state income taxes. The AMT was enacted in 1969 when approximately 19,000 taxpayers were impacted and increased to nearly 2.6 million in 2002. In 2010, it is projected to impact 33 million taxpayers.
The worst part of AMT is that it is exceedingly complex and confusing. The best advice for taxpayers impacted by AMT is to contact your local income tax preparation office to help navigate and plan your way through this complicated area of taxes.
For more information and resources on calculating AMT, please see Alternative Minimum Tax (AMT) Assistant for Individuals.
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.