Saturday, June 14, 2008

What the heck is AMT?

Sometimes it seems like the IRS has nothing better to do than come up with more abbreviations and acronyms to confuse us. Well, worry no more! In our new "What the heck is...?" series, we'll try to clarify some common IRS jargon!

AMT: The Basics

Let's start out easy first. "AMT" stands for Alternative Minimum Tax. Introduced in the Tax Reform Act of 1969, this tax was aimed at snagging those high income households that, through a series of smart investments and taking advantage of the tax system, hardly owed anything in taxes at the end of the tax year. The IRS did this by disallowing some deductions and requiring a minimum tax bracket. Later, the AMT's excluded deductions and exemptions was widened to allow the Alternative Minimum Tax to affect more wealthy American households.

What The Basics Mean To You
The AMT is still in use today and comes under criticism because it's values have not been adjusted for inflation. This means that as salaries increase relative to the cost of goods, AMT does not. This sends undeserving tax payers into the AMT qualification that were not intended to be there.

What determines if AMT will affect you are your type of deductions and your income. See IRS Mind's blog post on AMT to see what type of deductions affect AMT. See the IRS Website to determine if your income may be subject to the AMT. And if you have any questions, see advice from a professional!

No comments: