- What is the AMT
What is the Alternative Minimum Tax (AMT)?
Legislation passed late last year protects millions of taxpayers from paying higher taxes under the Alternative Minimum Tax when they file their 2007 returns. The last-minute bill caused delays at the IRS in receiving certain tax forms in 2008, but those delays have ended.
We have incorporated all the changes from the December tax bill into our products.
REMEMBER that while the bill prevented the AMT from reaching some 20 million taxpayers in 2007, at least four million will still be required to pay the AMT on their 2007 returns. If you're worried that you might be one of them, read below.
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 both 2005 and in 2006, Congress passed legislation providing a temporary fix to keep the AMT from spreading to taxpayers who aren’t wealthy. Still about four million taxpayers were hit by the AMT in 2006. On Dec. 26, President Bush signed legislation approving yet another one-year fix, ensuring that an additional 20 million taxpayers won't pay the AMT on their 2007 taxes.
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 – on the Federal Bottom Line screen at the end of the interview. You’ll see if you are hit by this tax.
You can also use our Tax Calculator to see if you might have to pay AMT. After you've filled in your information and the calculator figures your approximate taxes for 2007, be sure to click the arrow to the right and follow it down. If you are likely to owe AMT, it will be shown there.
Taxpayers who have higher than average incomes, are married, have more than two children, own a home and live in a state with high income taxes, such as California, New York and Michigan.
That’s because the AMT won’t let you count certain deductions that would otherwise lower your taxes: for your 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 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 to know whether you fall under the AMT tax and how much you owe.
Most people can’t. 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.
In early January.
