According to Wikipedia, The Alternative Minimum Tax (AMT) is an income tax imposed by the United States Federal Government on individuals,corporations, estates, and trusts. AMT is imposed at a nearly flat rate on an adjusted amount of taxable income above a certain threshold (also known as exemption). This exemption is substantially higher than the exemption from regular income tax.
Regular taxable income is adjusted for certain items computed differently for AMT, such as depreciation and medical expenses. No deduction is allowed for state taxes or miscellaneous itemized deductions in computing AMT income. Taxpayers with incomes above the exemption must pay the larger of the regular Federal income tax or the AMT amount.
A predecessor Minimum Tax, enacted in 1969, imposed an additional tax on certain tax benefits for certain taxpayers. The present AMT was enacted in 1982 and limits tax benefits from a variety of deductions. On January 2, 2013, President Barack Obama signed the American Taxpayer Relief Act of 2012, which indexes to inflation the income thresholds for being subject to the tax.
In layman terms, the alternative minimum tax (AMT) is an extra tax some people have to pay on top of their regular income tax.
With that defined, let’s talk about how it could apply to you.
It has its own set of rates and rules for deductions, which are less generous than non-AMT rules.
The AMT was created to prevent people with substantially high incomes from using special tax benefits to pay little or no tax.
AMT was originally targeting the rich and has been in existence for 42 years. Over these years, the AMT tax has now expanded its reach to taxpayers who may not have the typical high income and who may not claim special tax benefits.
How do you know if you have to pay the AMT?
There are many determining factors of why you would be subject to the AMT tax. It doesn’t seem to be black or white. A taxpayer may be subject to AMT due to one large item on their tax return or a collective group of several small items.
With these uncertain specifications, any taxpayer may find them a candidate for the AMT tax.
The IRS looks to taxpayers with children, because of the tax dependents, capital gain payers and those who may even take mortgage interest deductions. Watch the deductions you pile up because the IRS is watching you
The average AMT tax liability is between $2,000 and $15,000.
History of the AMT… and why it was created.
In 1969, government officials found that 155 tax payers with higher incomes were legally using so many deductions and other tax breaks that they were paying absolutely nothing in federal income taxes. These 155 people trail-blazed the path for this ambiguous tax.
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