- Personal Finance
Alternative Minimum Tax: Definition and How to Figure Yours
Alternative Minimum Tax is like a parallel tax system, in place to ensure all pay their fair share of taxes, without hiding wealth behind deductions and extra tax credits. “Every tax payer is responsible for paying the higher of the regular tax or the minimum tax (Perez, 2011). When calculating a tax payers regular taxes, the parallel tax rate (AMT) must also be calculated. If the tax payers taxes are higher under the minimum rate, they must pay the difference from their regular tax mathematics.
This minimum tax rate is exempt for many low-income families and even middle class. Single taxpayers are exempt below 48,450 and married tax payers who make below 74,450 are exempt from paying the minimum tax rate. Meaning, low income families may pay no tax or less than the going minimum rates. Currently the minimum tax rate for all that make more than the exemption amount are taxes 26% on the first 175,00 made, with 28% imposed on the rest. Exemption does not full phase out until a much higher rate, with each dollar exemption reduced to 25% until its complete phase out at 150,000 for married tax payers and 112,500 dollars for single tax payers.
The theory of this minimum tax rate was to ensure that taxpayers pay at least a minimal amount of tax. So tax payers who made large amounts of money could not find deductions and credits to save them from paying taxes. AMT is figured on a different rate, but it also excludes many of the deductions most companies will take advantage of. In doing this, item deductions on accelerated depreciation, foreign tax credits and investment expenses could not be excluded from the adjusted gross income taxed causing many to have AMT liabilities. It has also caused concern in recent years as inflation sky rockets and the amounts in exemption are no longer so much middle class, as upper poverty. Since it’s creation there has been no change to the amounts to coincide with changing inflation prices causing middle class families to have to pay an AMT liability. (Whiitenburg&Altus-Buller, 2012)
Perez, William (2011) Alternative Minimum Tax.About.com.guide
Whittenburg&Altus-Buller (2012)Income Tax Fundamentals.2012 Edition.South-Western Cengage Learning