Alternative Minimum Tax - A Parrallel Tax Calculation
Published on Saturday, 11 June 2011 14:39 Written by Lawrence D. Brudy & Associates, Inc.
AMT, alternative minimum tax is a parallel tax calculation which was originally enacted in 1969 to ensure that wealthier taxpayers paid at least a minimum amount of tax. However, as the definition of the preferential items used in the AMT calculation expanded to include ordinary and commonplace deductions, many more middle income taxpayers are finding themselves subject to this additional tax. The AMT is a complex calculation and this article is limited to a superficial exposure to some of the items and issues. Every taxpayer is different and should consult their tax advisor for how AMT applies to their specific situation.
Some of the more common items, which are added back to the income to calculate the alternative minimum tax are: state and local income taxes, real estate taxes, personal property taxes, home mortgage interest, miscellaneous itemized deductions in excess of the 2% floor and medical expenses in excess of 10% of the adjusted gross income.
For business and investment owners, there are items which are passed through to the taxpayer via a K-1 which are also preferential items and are used in this calculation. Certain tax exempt interest can also be added back for the adjusted income for alternative minimum tax.
There is an exemption amount used in the calculation and the Tax Increase Prevention Act of 2007 retroactively implemented an AMT patch increasing the AMT exemptions for another year (e.g., $66,250 for a married couple filing a joint return). A study by the Urban Institute-Brookings Institute Tax Policy Center projects that about 30 million taxpayers will be subject to the AMT within the next few years, as compared to the approximately 4 million or so currently paying the additional tax.
The Joint Conference Committee on Taxation has reported that repealing the AMT would eliminate $611 billion in revenue over the next decade. A tax reduction of that amount would require offsetting tax increases, mostly through an overhaul of the system. Several Congressional leaders are seeking to extend the patch another year to keep the exemption from reverting to the lower amounts (i.e., $45,000 for married filing a joint return).
Contact any of the firm's attorneys at (724) 935-1400 for more information.