Brady and Associates, LLC

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Alternative Minimum Tax

The Alternative Minimum Tax (AMT) provides an alternative set of rules for calculating your income tax. In theory, these rules determine minimum amount of tax that someone with a specific income should be required to pay. If a taxpayer is already paying at least that much because of the "regular" income tax, you don't have to pay AMT. But if your regular tax falls below this minimum, you have to make up the difference by paying alternative minimum tax.  While the "regular" tax brackets, exemptions and standard deductions are adjusted annually for inflation, the AMT brackets and exemptions are not.  Therefore more and more taxpayers are subject to AMT each year.

There are many items that can cause (or contribute to) liability under the alternative minimum tax.  Some of these items are: 

· Exemptions

· State and Local Taxes

· Standard deduction

· Interest on second mortgages

· Medical Expense

· Miscellaneous Itemized deduction

· Various Credits

· Incentive Stock Options

· Long Term Capital Gains

· Tax Exempt Interest

· Tax Shelters

AMT is a complicated.  The best way to understand the AMT is to view it as a separate tax system. It has its own set of rates and its own rules for deductions, which are less generous than the regular rules. Because of these confusing rules, the only ways you can tell if you owe the tax are by filling out the forms (essentially doing your taxes a second time).

If you want to know if you may be subject to AMT and need to file form 6251 check out the IRS’s AMT assistant.