Alternate Minimum Tax (AMT)

Many years ago the country was fed up with rich people not paying any tax or were paying 10% while the rest of us were paying 15% to 40%.  So the IRS and Congress came up with the Alternative Minimum Tax.

The premise is that people that were earning a decent amount of money would still need to pay a minimum tax of about 22-26%.  People were structuring deals so that they would get preferential treatment on their dividends and capital gains and only have to pay 10% tax.

There are some preferences that are still in the AMT tax code.  First we will discuss the things that might hurt you.  First of all, when you might be in this category, make sure you do not prepay your state income tax.

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In this AMT tax code is a certain threshold of about $85,000 that hasn't been raised or adjusted for inflation since inception (not a plug for the movie).   When the rest of the country was making $20-30,000 this seemed like a fair deal.  But now that two earner families are making over $90,000.  Now many people are being affected by this tax.

One of the common ways to be affected by this tax is to have a high number of 2 percent deductions.  for example, a pilot, trucker or other transportation worker, has many expenses for overnight travel, meals and incidentals and other job expenses, that aren't paid directly by their employer or they are included in their W-2's then the employee is responsible to take the deductions on his tax return.