You might have an unexpected tax liability for 2005, especially if you’re a middle- or high-income taxpayer. It’s called the alternative minimum tax, or AMT. It’s estimated that over three million people paid AMT in 2003, and that number is rising fast.
The AMT is a parallel tax system that was designed to make sure the very wealthy didn’t use deductions and other tax breaks to avoid paying tax.
Under the AMT, you can’t take personal exemptions, the standard deduction, and some itemized deductions. You’re allowed one exemption amount and a few deductions. Above that you start paying tax at 26%.
If your tax under the AMT rules is higher than your regular tax, that’s the amount you must pay.
When it was first introduced, the AMT worked well. But the exemption amount isn’t indexed for inflation. So as incomes have risen over the years, more and more middle-income taxpayers have found themselves falling under the AMT rules. You can be especially at risk if you have many dependents and claim high itemized deductions.
If you’re concerned about your potential AMT liability, or if you want to learn more about the AMT, please call our office for an appointment.
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