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Congress created the Alternative Minimum Tax (AMT) in 1969. The purpose was to ensure that anyone who benefits from certain tax advantages pays at least a minimum amount of tax.
Because the AMT is not indexed for inflation, a growing number of middle-income taxpayers are discovering they are subject to the AMT.
The AMT is calculated using a separate set of rules that remove many deductions allowed for regular income tax purposes. If your regular tax falls below the AMT tax calculation, you make up the difference by paying Alternative Minimum Tax.
The regular income tax rules provide tax benefits for certain types of income and allow deductions and credits for certain expenses.
The AMT does not allow:
- Exemptions for the taxpayer, spouse, and dependents
- The itemized deduction for state and local taxes
- Unreimbursed employee business expenses
- Tax preparation fees
- Investment expenses
This calculated tax is added to your tax liability on Form 1040.
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