Congress passed the alternative minimum tax (AMT) some 45 years ago because some wealthy families were legally using so many deductions and tax breaks that they were paying no federal income taxes at all.
Talking about the AMT gets about the same response as discussing igneous rocks and teeth flossing—not real glamorous stuff. Even so, it's important to understand the basics so you can know when and why it's implemented. Perhaps doing so will give you cause to examine your finances and how they will be impacted in the future. Perhaps that's why MoneyWatch called their recent article "What taxpayers need to know about the dreaded AMT."
The AMT originally mandated that high-income taxpayers recalculate their taxes without including many of the common deductions and exemptions. The objective: if using some tax deductions and exemptions caused your regular income tax to fall below a minimum amount, then AMT would be triggered and up your taxes. With the AMT, you must start by figuring your taxable income the normal way, but then you have to add back any adjustments and deductions the AMT doesn't allow.
Although the AMT was first intended to ensure that the nation's wealthiest earners paid some tax, ithe AMT now is an issue for many average taxpayers. Why? Because the income threshold used to calculate the AMT hasn't been increased in some time. In fact, you may be one of these individuals. Read the original article and make sure you are preparing your taxes to pay only what is required.
For more information on the Alternative Minimum Tax, please visit contact your CPA or tax preparer. Please contact us if you need a referral to a CPA or tax preparer by visiting our website.
Reference: MoneyWatch (February 26, 2014) "What taxpayers need to know about the dreaded AMT"