Understanding the Alternative Minimum Tax
The Alternative Minimum Tax (AMT), introduced in 1969, was designed to ensure high-income individuals pay a minimum amount of federal income tax, even after using various deductions and tax breaks. Initially targeting a small number of high-income taxpayers, AMT’s impact has expanded significantly over time due to a lack of inflation adjustments until 2012.
Today, the AMT affects around 4.1 million taxpayers and generates $28.2 billion in revenue. The income thresholds for AMT liability in 2015 are:
- Single or Head of Household: $53,600
- Married Filing Jointly: $83,400
- Married Filing Separately: $41,700
Under AMT, certain deductions allowed under the regular tax system are added back, including state and local taxes, real estate taxes, and personal exemptions. However, AMT allows a deduction only for mortgage interest on acquisition indebtedness, not home equity loans. Medical and dental expense deductions are adjusted for those under 65, but remain the same for those 65 and older.
Charitable contributions remain deductible under AMT, and preferential tax rates for qualified dividends and long-term capital gains apply similarly under both tax systems.
While reducing AMT liability by cutting deductions might increase regular tax liability, careful tax planning can help manage expectations when filing tax returns.
To start planning, contact a ShindelRock tax professional today.