Posts Tagged ‘AMT’

Alternative Minimum Tax (AMT)

Saturday, March 10th, 2012

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This is a rather insidious provision of the income tax laws.  Perhaps the authors had Warren Buffet in mind when the tax law was passed.  The provisions were initially enacted in 1969 as the “Minimum Tax” law.  Just as the very same opinions among non-wealthy taxpayers exists today, in the 1960s there was a concern by Congress that many wealthy taxpayers were paying little or no tax at all since they had taken full advantage of the tax loopholes, or the benefits of the many tax deductions which were available to them.  Under the provisions of the law a taxpayer’s “Taxable Income” was first calculated with the full benefit of these “tax preference” deductions.  Then an alternate calculation was used whereby if your tax return included one or more of the “tax preference” line items, the deduction was added back to your taxable income to re-calculate or re-determine your “Taxable Income.”  Your income taxes were calculated based upon both methods and your income taxes were determined using the method which produced the highest income tax liability.   

The tax law was revised in 1982 and was appropriately re-named as  the “Alternative Minimum Tax” (AMT).   The original income threshold for being subject to the AMT was approximately $40,000.00.  At that time most taxpayers were not affected by the AMT.  However, since the 1980s our individual incomes have continued to increase, even if only adjusted for inflation.  However, Congress has not adequately adjusted the AMT income threshold.  For 2011 the AMT threshold for a married couple who are filing a joint tax return is $74,450.00.    

 If you believe that you may be affected by the provisions of this tax law, then review the instructions for Federal Form 6251 (http://www.irs.gov/pub/irs-pdf/i6251.pdf )  If there are additional AMT taxes on your tax return the amount will be on Line #45 (“Alternative Minimum Tax”) of Federal Form 1040. (more…)