What is the AMT tax exemption about?

Question

I am not sure if it will hurt me or help me if I fall within the pay scale of 40-45K a year.

Answer 1

It's not an exemption, it's a TAX. It was originally implemented in 1969 to ensure that even the wealthiest citizens paid at least some tax.

However, it was never indexed to inflation so more and more middle-class taxpayers are being bitten in the backside by the AMT. It's the dirty little secret behind the great big lie on tax cuts -- many of the so-called tax cut provisions are likely to actually trigger AMT events. These triggers can increase your tax bite, MASSIVELY in some cases.

Unlike most parts of the tax code where you can choose the most favorable way to figure your taxes, the AMT is not optional. If the AMT provides for a higher tax, you MUST pay the higher AMT amount. Thousands of middle-class taxpayers are shocked every year to receive a bill from the IRS because they were unaware of the AMT and did not calculate their taxes both ways. The IRS never makes that mistake and will recalculate your taxes and bill you if the AMT provisions apply -- plus penalties and interest, of course.

The range that your income is in is probably low enough to not worry about it at the moment unless you have a really large family. But you need to be aware of it and keep it on the radar screen as your income rises. Such things as having too many children can trigger AMT events so be careful!

Answer 2

The AMT is the "Alternative Minimum Tax". It is not a deduction at all. It is intended to ensure that wealthy taxpayers pay at least some tax, even if they have everything arranged in tax shelters and such. Though it is aimed at the wealthy, it does affect some middle-class taxpayers. I don't think you have to worry about it at 40-45k a year.