Can someone explain what is AMT (Alternative Minimum Tax)?

Question

In basic terms - that I don't have to be an accountant to understand? :) I've googled it but the answers just don't make sense.

Thank you!

Answer 1

It may sounds weird to call it an alternative to the regular tax system, but that's what it is. You must compute your tax under the regular tax system, and under the AMT computation. If the regular computation is higher, then you pay that amount. If the AMT is higher, then you pay that amount.



The AMT was designed after it came out 30-40 years ago that some very high income individuals were paying almost no tax because they had sufficient deductions to zero out their income.



Basically the AMT has a broader income base (it taxes more types of income) and allows fewer deductions, but has a lower marginal tax rate than the standard system (about 28% versus up to 35%). It usually hits people who live in states with high property values and high state tax rates higher than those in low property value/low state tax areas.

Answer 2

Explain Alternative Minimum Tax

Answer 3

as noted there are two calculations because some benefits that might be overly stated are reduced in calculating the AMT, ie. I had a client who had over 20 adopted children(special ones she legally adopted) but she had very good income and using all her exemptions caused her to be charged the Alt Min. reducing the number of her exemptions, also reduced the Alt Min for her and in the end even some of the mortgage interest she was entitled to caused the Alt Min. There are many subjects in the Alt Min that alter the taxable income to determine the income tax and it is not uncomplicated