AMT: The “other” income tax
Everyone as heard from certain political leaders that every American needs to pay their “fair share” in income tax. And in the federal tax code there is a tax arrangement that more or less attempt this goal; it is the Alternate Minimum Tax (AMT). The AMT was first enacted by Congress back in 1969, which was aspirated by then Treasury Secretary Joseph Barr, because certain high-income individuals (155 of them, in fact), did not pay one dime of income tax. Today, it is projected for 2014 that 4.2 million individuals would be subject to the AMT, according to the Tax Policy Center (a far cry from the original 155 individuals).
So how does the AMT operate? First of all, it is the closest tax system there is to a flat income tax, however the AMT adds back to income certain tax deductions that was already claimed and here are some of the tax deductions that are added back to income:
• Personal and dependent exemptions, yes having a lot of kids alone could trigger the AMT;
• Medical expenses, if a person is at or over 65 years old, his/her medical expense deduction would normally be viable if it at least 7.5% of total income. For AMT purposes this threshold would increase 10% of total income (which is the threshold for everyone);
• State & local taxes deducted, including real estate taxes;
• Mortgage Interest, only mortgage interest paid in order to buy, build, or substantially improve a primary and/or a secondary residence, could be claimed as a deduction for AMT purposes. Thusly, home equity loans are not deductible against the AMT.
These are some of the tax deductions, that are normally claimed, which would be added back to income, and then subject to a flat income tax rate of 26% or 28%. Of course there is an AMT exemption amount to be applied, which finally in 2012 Congress indexed for inflation. If it weren’t for this legislation, then the number of individuals that would be subject to AMT would have been at 25.7 million for 2014, than the mere 4.2 million individuals.
So that is how the AMT operates, it simply adds back certain normal tax deductions to income, and taxed at a flat rate of 26% or 28%, as a minimal tax a person liable for. If you want to see how the AMT would potentially work in your individual case, please contact us at , and we will see if you would be subject to the AMT.