Alternative Minimum Tax – What Does It Mean to You?
The IRS wants to make sure that anyone able to benefit from the various tax advantages available will still pay a minimum amount of tax. In short, it creates a secondary method of calculating taxes called the Alternative Minimum Tax (AMT). With this method of calculating taxes, the goal is to determine the amount of tax a person who has your income should have to pay. If your regular tax is lower than the minimum amount that you should be required to pay, you will need to pay the alternative minimum tax to make up the difference.
The AMT has exemption amounts of the following:
- For those who are married and filing jointly, and qualifying widow: $74,450
- For single or head of household filers: $47,450
- For married filing separately filers: $36,225
If you do not fall under one of the exemptions listed above, you will need to complete AMT Form 6251 when completing your income tax forms for the federal government. You will need to complete your standard return as well. Then, you’ll need to compare the two and pay the difference.
Who Should Pay Attention?
There is no simplistic method to know whether or not you need to pay AMT. This is dependent on your return each year.
The Alternative Minimum Tax could affect more people than you may think. Here are some things you need to know about it:
- The usual target of the AMT is higher income individuals who claim numerous deductions on their tax returns. They end up paying very little or no tax because of their available deductions. However,
- Many middle income taxpayers are also in fact subjected to AMT. That’s because this is not an inflation-indexed exemption.
- Those who have more than three children or who are claiming numerous deductions on their Schedule A returns are more likely to need to pay the AMT.
It is a good idea to speak to your tax professional about the likelihood that you’ll need to pay these taxes.