Much attention has been focused lately on the alternative minimum tax (AMT). This parallel tax system was created in 1969 to ensure that wealthy taxpayers (defined at that time as those with income over $200,000) didn't use loopholes to escape paying taxes. The AMT has its own set of rates and requires you to complete a separate set of computations.

While AMT rates themselves aren't very high—26% and 28%—if you find you are subject to the tax you could face a substantial bill. The reason: the AMT disallows many common regular tax deductions and credits. When calculating your potential AMT liability, you must add back or reduce these tax breaks and this gives you a higher income level that's then subject to the AMT rates.

If your calculation of your regular tax bill is as much (or more) than the alternative tax, you escape the AMT. But if your regular tax falls below the AMT amount, you have to make up the difference.

Charitable gifts escape AMT restrictions

Return to Tax Value Home Page