- What is the AMT
What is the Alternative Minimum Tax (AMT)?
All TurboTax products reflect updated changes on AMT law for 2008 filing
Legislation passed in 2008 will protect millions of taxpayers from paying higher taxes under the Alternative Minimum Tax when they file their 2008 returns. Similar legislation passed by Congress late in 2007 led to delays for some taxpayers when filing their 2007 tax returns, but there are no such delays for 2008 filing.
Updated law protects many taxpayers, but not all
While the most recent legislation prevents the AMT from reaching some 20 million taxpayers during the 2008 tax filing period, at least four million taxpayers will still be hit with the tax.
Taxpayers who fall under the AMT pay an average of $2,000 in additional federal income taxes.
If you're concerned that you might be one of them, read below.
So what is the AMT and why is it such a big deal?
The AMT was conceived in 1969 as an alternative tax to ensure that the wealthiest taxpayers, even with their big deductions and loopholes, didn’t avoid paying income taxes. But because the tax was not adjusted for inflation, it has increasingly reached down into the middle class. Now, unfortunately, it’s a major source of revenue for the Treasury and there’s no easy political solution.
In recent years, including 2008, Congress passed legislation providing a temporary fix to keep the AMT from spreading to taxpayers who aren’t wealthy.
How do I know if I'll be hit with the AMT?
Most likely you won’t be. But you can only know for certain when you prepare your tax return. There are no easy income guidelines that let you know if you must pay the tax -- it's determined by multiple factors.
As the name says, it’s an “alternative” tax. It’s calculated at the same time as your regular taxes. Whichever tax is greater, you must pay that. If the alternate method results in a higher tax, the difference between it and your standard tax bill is the AMT.
TurboTax will calculate this as you’re doing your taxes and show you on the Federal Bottom Line screen at the end of the interview. You’ll see if you are hit by this tax.
Who is most at risk for the AMT?
Taxpayers who have higher than average incomes, are married and have more than two children, own a home and live in a state with high incomes taxes, such as California, New York and Michigan.
The AMT affects such taxpayers because it won't let them count certain deductions that would otherwise lower their taxes, such as dependents or children, state income taxes, property taxes, interest on second mortgages or home-equity loans and high medical expenses.
We wish we could tell you the exact income level, or the amount of deductions, that cause the AMT to kick in. Unfortunately, we can't, because the AMT simply doesn't work that way.
It has many variables. Again, you have to complete your tax return and TurboTax will tell you whether you fall under the AMT tax and, if so, how much you owe.
How can I avoid it?
Most people affected by it can’t get around it. The AMT was designed to close loopholes - so it's very difficult to avoid.
For an in-depth understanding of the AMT, see the following article.
