Alternative Minimum Tax (AMT)
By Gregory J. Cook, EA, CPA, Accredited Tax Advisor
The AMT tax was
created as a political response to the fact that in 1966 five taxpayers with
over $ 200,000 in income paid no federal income tax. The growth of the number of
people subject to this tax is alarming. In 1999, about one million people were
affected by AMT. This number is expected to grow to 36 million in 2010.
The alternative minimum tax prevents a taxpayer with substantial income from
avoiding a significant tax liability. It equals the excess of the tentative
minimum tax over the regular tax. The tax laws give preferential treatment to
certain kinds of income and allow special deductions and credits for some kinds
of expenses. The alternative minimum tax attempts to ensure that all individuals
who benefit from these tax advantages will pay at least a minimum amount of tax.
The alternative minimum tax is a separate tax computation that, in effect,
reduces the benefit of certain deductions and credits, thus creating a tax
liability for an individual who would otherwise pay little or no tax. You may
have to pay the alternative minimum tax if your taxable income for regular tax
purposes, plus any of the adjustments and preference items that apply to you, is
more than a specified exemption amount.
Did you receive or
claim any of the following items in this tax year?
-
Accelerated
Depreciation
-
Stock by exercising
an incentive stock option and you did not dispose of the stock in the same year
-
Tax exempt interest
from private activity bonds
-
Intangible drilling,
circulation, research, experimental or mining costs
-
Amortization of
pollution-control facilities or depletion
-
Income (or loss) from
tax-shelter farm activities or passive activities
-
Income from long-term
contracts not figured using the percentage-of-completion method
-
Interest paid on a
home mortgage NOT used to buy, build or substantially improve your home
-
Investment interest
expense reported on Form 4952
-
Net operating loss
deduction
-
Alternative minimum
tax adjustments from an estate, trust, electing large partnership or cooperative
-
Section 1202
exclusion
-
Any general business
credit
-
Qualified electric
vehicle credit
-
Non-conventional
source fuel credit
-
Credit for prior year
minimum tax
If so, the AMT may
apply to you.
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