What is AMT?

AMT is the Alternative Minimum Tax system and establishes a parallel set of tax rules for taxpayers and tax preparers to work with when filing individual income tax returns.  It was created as a method to establish a minimum tax for individuals making certain levels of income.  Over the years, various patches and exemptions have lessened the impact of the AMT, but it is still has a direct impact on many taxpayers. 

Whether you are aware of it or not, each taxpayer must calculate their taxes under both the “normal” tax guidelines as well as the AMT tax guidelines.  If you pay a CPA or other preparer to complete your tax returns or use TurboTax or similar software programs, this calculation is being completed.  The reason taxes are calculated under both guidelines is that you will owe the higher of the normal income taxes and the AMT tax. 

Why Should I Care?

Over the years, Congress has established exemption levels that have kept a large number of taxpayers from incurring AMT taxes.  However, as of this point of 2012, the AMT exemption level is set to drop to its lowest level since the early 2000’s.  In 2011, the AMT exemption amount was $74,450 for a couple married filing jointly and $48,450 for a single individual.  In 2012, the exemption amounts drop to $45,000 for a couple married filing jointly and $33,750 for a single individual. 

If you paid AMT in the past, this reduced exemption will likely increase your AMT tax.  If you have not been subject to AMT in the prior years, the reduced exemption could introduce this additional tax to you and your tax return. 

There is a light at the end of the tunnel.  It has been routine for Congress to pass AMT tax patches to increase or extend exemption amounts to avoid millions of additional taxpayers becoming subject to AMT tax.  To be clear, right now, no such patch has passed for 2012 and will not likely be entertained until after the November elections.  Between now and then, take a look at your tax picture with your CPA to see how the AMT changes may (or may not) affect your 2012 tax filings.

brad@mcarthurco.com

704.544.8429