Taking Aim at the AMT Tax

Over the past ten years a majority of our clients have become subject to a tax that is little known and even less understood: the Alternative Minimum Tax (AMT).  The name actually does a good job of explaining what it is–a different way to calculate the minimum amount of tax a taxpayer has to pay.  It was originally put in place in 1969 to prevent some sneaky high income earners who avoided paying taxes by taking a multitude of deductions.  The AMT computes a tax amount using its alternative system, compares it to the regular tax amount due, and the taxpayer pays the higher of the two.

For a number of years this accomplished its intended mission.  But now, because Congress did not index this tax for inflation, taxpayers we would commonly think as more “middle income” earners are getting hit with AMT.  The Bush-era tax cuts hastened the coming of the AMT by lowering a taxpayer’s regular tax amounts to a point where their AMT amount is actually higher.  This resulted in a watering down of these tax cuts.  On the bright side, however, it will also reduce the effects of any potential future tax increases.

Taxes that don’t fulfill their intended role are fundamentally unjust and should be changed/removed.  This isn’t so easy when the AMT generates $123 BILLION and is paid by 35% of all taxpayers. Here is an interesting report from the Tax Policy Center which details other information about AMT. 

If you’d like to know if the AMT is affecting you, call us.  We can give you some specifics regarding how/if this is affecting you.  And if you have any political opinions regarding this, let your congressional representative know.