AMT Made Simple: Understanding the Alternative Minimum Tax
I have come to view paying taxes as a necessary burden. Each year my burden seems to get heavier. Part of the problem is the constant changes in the Alternative Minimum Tax or the AMT. The Alternative Minimum Tax was originally designed to prevent those in the high-income bracket from claiming so many deductions that they owed little or no taxes. Unfortunately inflation was not a consideration when AMT was implemented in 1969. Now in 2008 lower and middle class Americans like myself are subject to AMT. Congress tries to fix the problem by implementing temporary patches that constantly change and are mind boggling to say the least. The rules are so confusing the only ways you can tell if you owe the tax on your own is by filling out your taxes twice or being audited.
Who owes the Alternative Minimum Tax?
Taxpayers owe the Alternative Minimum Tax whenever their tax liability under the AMT is higher than their tax liability as calculated under the regular income tax. I found the easiest ways to figure out AMT status is on the IRS website. The IRS has a program called the AMT Assistant. The AMT Assistant is simple to use. I completed it in just a few minutes. You answer questions based on your draft 1040 and the program does all the work. The results show up immediately and tell you that either you do not owe the AMT or instruct you to go further and complete form 6251(http://www.irs.gov/pub/irs-pdf/f6251.pdf) to find out if you owe the AMT. Your entries are anonymous and the information is erased when you exit or start over.
2008 AMT Changes
• The AMT exemption amount for a child increased. The AMT exemption amount for a child whose unearned income is taxed at the parent’s tax rate has increased to $6,400 for 2008.
• AMT exemption amount decreased. For singles the amount is $33,000. The AMT exemption amount is $45,000 if married filing jointly or you are a qualifying widow(er): If you are married filing separately the AMT exemption is $22,500.
• Credits no longer allowed against the AMT include residential energy credits, mortgage interest credit, credit for the elderly and the disabled, education credits. Also credits are no longer allowed for child and dependent care expenses. In addition, the first time homebuyer credit for the District of Columbia is no longer allowed against the AMT.
Do Not Ignore AMT
If you make more than $70,000 dollars a year, there is a chance you could owe the AMT and should use the AMT Assistant. IF you make $200,000 dollars a year, own rental property and or own stock automatically assume you owe AMT until proven otherwise. The AMT is not to be ignored. If the Internal Revenue Service audits you and it turns out you should have paid the AMT but didn’t, you will owe interest, penalties and AMT.
