What is Alternative Minimum Tax?
The alternative minimum tax was established to ensure wealthy individuals still paid taxes after applying tax deductions. Originally, its goal was to protect middle-income earners and below from paying higher taxes by making a portion of their income not subject to the tax. Wealthy families and individuals would pay regular tax rates on all income for the year should their earnings exceed the AMT exemption amount. The non-taxable portion of a person’s income subject to alternative minimum taxable income can change every year and has a variation dependent on marriage status for the tax year filed.
How the AMT may affect you
The AMT has come under more scrutiny in recent years as the middle-income families that the law was drawn up to protect have been increasingly falling under the tax liabilities as much wealthier taxpayers. When the law was established, the consumer price index (CPI), inflation, and medical and college tuition expenses which both have risen inexorably higher, were not considered.
Before filing your taxes, you should remember how this tax code could potentially affect you if you earn over $50,000 at present or expect to exceed this amount. If you earn more than $80,000, you can use a software app with this feature or hire a tax professional to find out how much of your income will be subject to the AMT, and more importantly, what you should do to reduce your tax liability.