Want to avoid the Alternative Minimum Tax? We don’t blame you.
Alas, we Googled around, interviewed experts, and learned… there ain’t nothin’ you can do about it.
The AMT is a “parallel tax” that was created in 1969 to prevent extremely wealthy people from claiming so many exotic deductions that they didn’t have to pay a cent in income tax.
But it hasn’t been adjusted for inflation since then—so even if you’re nowhere near Romney-style earnings, you may still fall into this strange alternate tax reality.
You’re vulnerable if you claim big deductions like mortgage interest, are married with kids, or live in a state with high income tax (like New Jersey, New York, or California).
“The AMT is a big issue in Congress because it’s insanely unpopular,” says K.M. Pittman, a Virginia-based CPA. “But it brings in so much money that they don’t know what to do to replace it.”
Last year, the AMT generated $24.3 billion in tax revenue. No wonder Uncle Sam is reluctant to give it up.
Could you get caught in the jaws of the AMT? Check before you file, or you could get hit with penalties. Use tax software that automatically calculates AMT—or get acquainted with IRS Form 6251. The IRS’s AMT Assistant can also help.