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Alternative Minimum Tax (AMT)


The AMT Was initially enacted to prevent high-income taxpayers from taking advantage of tax shelters to legally avoid paying income taxes. Is this still true? What has happened to the AMT? Does it still affect only high-income taxpayers? Do you t...Read More


~Posted on Jan 2019

Alternative Minimum Tax (AMT)

The AMT Was initially enacted to prevent high-inc...

The AMT Was initially enacted to prevent high-income taxpayers from taking advantage of tax shelters to legally avoid paying income taxes. Is this still true? What has happened to the AMT? Does it still affect only high-income taxpayers? Do you think taxpayers in high real estate taxes like NYS are unfairly affected by the AMT? What other issues do you see in the administration of the AMT? Have either of the Presidential candidates proposed any changes in the AMT?



Alternative Minimum Tax (AMT)

         The alternative minimum tax alias AMT is a supplemental income tax that is imposed by the United States federal government. AMT is added on top of baseline income tax for particular individuals, estates, corporations and trusts that have exceptional circumstances or exemptions that allow for lower payments of standard income tax. AMT is typically imposed at almost a flat rate on an adjusted amount of taxable income above a certain threshold (exemption). This exemption is significantly higher than regular income tax exemption. The initial AMT enacted in 1969 imposed an additional tax on specific tax benefits for particular taxpayers. AMT was originally enacted to prevent high income or wealthy taxpayers from taking advantage of tax shelters among other tax avoidance techniques to legally evade paying income taxes. Taxpayers with incomes exceeding the exemption whose regular federal income tax lies below the amount of AMT must pay the higher AMT amount.

 The present AMT was enacted back in 1982 to limit tax benefits from various deductions. Regular taxable income is adjusted for particular items computed differently for AMT including medical expenses and depreciation. No deductions are allowed for state taxes or miscellaneous itemized deductions in computing AMT income. The rich are not the only ones to worry about AMT. According to Tax Policy Center experts in 2013, around 4 million taxpayers (4.2% of the nation’s total) were projected to get hit with AMT. The average tab for individuals was $6,600. A partner in Friedman LLP (a New York City accounting firm), Dave McKelvey said "Unfortunately, AMT is really targeted at the middle market. If you make a lot of money, your regular tax is going to be high enough that AMT is not going to be an issue, and if you make an income that's low enough, AMT is not going to be an issue." (Brown). However, married couples, large families and taxpayers in high real estate taxes like NYS are still unfairly affected by the AMT.

The main issue that affects the administration of the AMT is that it doesn’t achieve what it was meant to and instead, it turned out to be a major problem for taxpayers. In a report released to the Congress by a national taxpayer advocate in 2004, AMT was affecting significant numbers of middle-income taxpayers and was projected to affect over 30 million taxpayers by 2010. On January 2013, the outgoing President Obama signed the 2012 American Taxpayer Relief Act that indexes to inflation income thresholds for being subjected to the tax. The president-elect Donald Trump seeks to repeal AMT and the estate tax while her counterpart Clinton had offered no specific changes to it although she suggested in the past that it needed reforms (O’Brien).

 

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Alternative Minimum Tax (AMT)