Is the Alternative Minimum Tax Sneaking Up on Your Clients?

Welch, Julie A.; Gardner, Randy; Meara, John W.
October 2004
Journal of Financial Planning;Oct2004, Vol. 17 Issue 10, p34
Academic Journal
This article discusses the concept of the alternative minimum tax (AMT) and its impact on taxpayers in the U.S. as of October 1, 2004. The AMT is currently the most serious problem encountered by taxpayers. The AMT is an alternative to the regular tax. After calculating the tax under the regular tax rules, one must then calculate the tax under the AMT rules. The purpose of the AMT is to ensure that people with large amounts of income and deductions pay at least a minimum amount of tax. The AMT is calculated in the same fashion as regular taxable income, but without many regular tax deductions and exemptions. Notably absent are deductions for state and local income taxes, real estate and personal property taxes, Miscellaneous itemized deductions, accelerated depreciation and depletion, and personal exemptions. In addition, AMT taxpayers must add back other items, such as tax-exempt interest income from certain bonds and certain gains from exercising incentive stock options. In 2010, the AMT is currently projected to affect almost 32 million people. The AMT no longer targets just wealthy taxpayers. Recent tax cuts in the regular rates have caused the AMT to sneak up on millions of unsuspecting taxpayers.


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