The Alternative Minimum Tax is designed to eliminate the overuse of certain tax breaks and make sure everyone pay their fair share in taxes. Although targeted at wealthy individuals, it actually affects quite a few taxpayers.
• Explains the Alternative Minimum Tax (AMT)
• Describes who is affected by the AMT
• Lists the amounts needed to calculate your AMT
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In recent years, some taxpayers have been able to significantly reduce or totally eliminate their tax liability through excessive use of tax deductions. The alternative minimum tax is intended to lessen this problem.
Typically the AMT affects high-income taxpayers, but recently more and more middle income taxpayers with multiple deductions have also been affected.
Since the qualifying characteristics for the AMT are so diverse and the process of determining your eligibility becomes rather complicated, we suggest that you let your online filing program or tax software do the calculations and determine your candidacy for the AMT.
How the AMT works
In essence, what the AMT does to your income and tax liability is add in select deductions you have previously taken out.
Depending upon your income, your itemized deductions are reduced or disallowed, which, in turn, increases your taxable income. Your tax liability is then determined using this newly computed taxable income.
The deductions that are added back into your income are:
• home mortgage interest, • tax refunds, • investment interest expenses, • capital gains and losses, • adjusted gain or loss, and • your child's investment income.
If you're filing a paper return, you'll need to perform these calculations yourself using Form 6251- "Alternative Minimum Tax - Individuals".
Or you can opt for the easy method of calculating your AMT - by filing your return online. Your AMT will be automatically determined and and Form 6251 will be filled out and attached to your completed return.
Related IRS publications
If you file a paper tax return, you will need to attach form 6251 with your return. The instruction booklet for this form provides further information about the alternative minimum tax. But do yourself a favor: e-file your return, and all of this extra paperwork will be taken care of automatically.
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