The Alternative Minimum Tax: 7 Quick Tips

The Alternative Minimum Tax attempts to ensure that anyone who benefits from certain tax advantages pays at least a minimum amount of tax.

 

Here are seven facts the Internal Revenue Service wants you to know about the AMT

1. Tax laws provide tax benefits for certain kinds of income and allow special deductions and credits for certain expenses. These benefits can drastically reduce some taxpayers’ tax obligations. Congress created the AMT in 1969, targeting taxpayers who could claim so many deductions they owed little or no income tax.

2. Because the AMT is not indexed for inflation, a growing number of middle-income taxpayers are discovering they are subject to the AMT.

3. You may have to pay the AMT if your taxable income for regular tax purposes plus any adjustments and preference items that apply to you are more than the AMT exemption amount.

4. The AMT exemption amounts are set by law for each filing status.

5. For tax year 2009, Congress raised the AMT exemption amounts to the following levels:

  • $70,950 for a married couple filing a joint return and qualifying widows and widowers;
  • $46,700 for singles and heads of household;
  • $35,475 for a married person filing separately.

6. The minimum AMT exemption amount for a child whose unearned income is taxed at the parents’ tax rate has increased to $6,700 for 2009.

7. If you claim a regular tax deduction on your 2009 tax return for any state or local sales or excise tax on the purchase of a new motor vehicle, that tax is also allowed as a deduction for the AMT.

 

The Alternative Minimum Tax: 7 Quick Tips

Taxpayers can find more information about the Alternative Minimum Tax and how it impacts them by accessing IRS Form 6251, Alternative Minimum Tax —Individuals, and its instructions below or by calling 800-TAX-FORM (800-829-3676).

 

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Seven Facts to Help You Understand the Alternative Minimum Tax AMT

Individuals with a higher income may be subject to the Alternative Minimum Tax. Under the tax law, certain tax benefits can significantly reduce a taxpayer’s regular tax amount. The AMT sets a limit on those benefits. If the tax benefits would reduce total tax below the AMT limit, the taxpayer must pay the higher Alternative Minimum Tax amount. The AMT system comes with a completely different set of rates and deduction rules. People pay it only if their AMT tax amount is higher than their traditional taxes. Translation: If you’re paying the AMT, you are by definition paying higher taxes.

The fiscal cliff deal also raised tax rates for higher-income earners. Couples making more than $450,000 a year and singles earning $400,000 or more now face a “marginal rate” of 39.6 percent rather than 35 percent on income above those levels. Because the maximum AMT rate is 28 percent, these well-to-do taxpayers will typically be charged more on their regular returns so they won’t face the AMT.

 

  1. Tax laws provide tax benefits for certain kinds of income and allow special deductions and credits for certain expenses. These benefits can drastically reduce some taxpayers’ tax obligations. The Alternative Minimum Tax attempts to ensure that anyone who benefits from these tax advantages pays at least a minimum amount of tax.
  2. Congress created the AMT in 1969, targeting a small number of high-income taxpayers who could claim so many deductions they owed little or no income tax.
  3. Because the AMT is not indexed for inflation, a growing number of middle-income taxpayers are discovering they are subject to the AMT.
  4. You may have to pay the AMT if your taxable income for regular tax purposes plus any adjustments and preference items that apply to you are more than the AMT exemption amount.
  5. The AMT exemption amounts are set by law for each filing status.
  6. For tax-year 2008, Congress raised the alternative minimum tax exemption to the following levels:
    • $69,950 for a married couple filing a joint return and qualifying widows and widowers
    • $46,200 for singles and heads of household
    • $34,975 for a married person filing separately
  7. Taxpayers may find more information about the Alternative Minimum Tax and how it impacts them by referring to IRS Form 6251, Alternative Minimum Tax Individuals, available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Even if you’ve been paying the reviled alternative minimum tax known as the AMT for years, your status can change. It all hinges on how much you make, where your money comes from and the deductions you can claim.

 

Seven Facts to Help You Understand the Alternative Minimum Tax AMT

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Alternative Minimum Tax (AMT) Processeing

IRS Successfully Processing Tax Forms Affected by AMT Legislation

WASHINGTON — The Internal Revenue Service is now processing the five tax forms affected by legislation involving the Alternative Minimum Tax (AMT).

On Monday, IRS systems began to accept and process returns that include the five affected forms. After several days of processing, the IRS has confirmed all systems are working properly.

In late December, the IRS announced it would delay processing of several tax forms. For the vast majority of taxpayers, the filing season this year began on time. But for any taxpayer whose return included any of the five affected forms, filing opened on Feb. 11.

 

Alternative Minimum Tax (AMT) Processing

Taxpayers who use the five forms can now file their tax returns as normal.

The affected forms are:

  • Form 8863, Education Credits
  • Form 5695, Residential Energy Credits
  • Schedule 2, Form 1040A, Child and Dependent Care Expenses for Form 1040A Filers;
  • Form 8396, Mortgage Interest Credit
  • Form 8859, District of Columbia First-Time Homebuyer Credit

Approximately 13.5 million taxpayers will use these forms this year. Altogether, the IRS expects to receive nearly 140 million individual tax return submissions this year.

The IRS has worked closely with the software industry and tax practitioners during the reprogramming process to minimize disruptions for taxpayers and the tax community.

If you haven’t filed your taxes yet, get started now using our online tax preparation system.