First, a disclaimer. I am not a CPA nor accountant and I don’t play one on t.v. To find out whether you are subject to the Alternative Minimum Tax (AMT) contact your accountant or CPA.
The AMT was originally enacted in 1969 in order to make sure that high income individuals paid income tax. Over the years, inflation has gone up resulting in more people’s income becoming subject to the AMT, which is not indexed to inflation.
In 1995 only 414,000 individuals paid AMT. By 2001 1.3 million people were subject to the tax. This year, 23.4 million people will be subject to it.
Why is this scary? You could be one of the 23.4 million! This tax is now affecting the middle class.
- If you earn over $75,000 you will need to do some calculations when preparing your tax returns to determine whether you are subject to the AMT. Under the AMT rules, if the amount you owe under the AMT tax schedule is higher that on your regular tax schedule, you must pay the difference in addition to your regular taxes.
The AMT disallows a lot of popular deductions, such as those for dependants, State and Local taxes, some medical and dental expenses.
So, families with children are more likely to fall under the AMT than those without children, and married couples are 12 times more likely to fall under the AMT than singles.
The good news is we are coming up on an election year and Congress should address the AMT or there are going to be a lot of unhappy voters in 2008 after having had to pay the AMT.
Unless Congress comes up with a fix for the AMT, I would suggest the following: Stay single, don’t have children and live in Florida!