What is Alternative Minimum Tax ? How can it be avoided ?

Answer 1

Judy, the genesis of AMT was 1969. President Richard Nixon paid no income tax by using large charitable write offs. That caused a public uproar and congress created the AMT to resolve it.

In it's first year, it impact about 30 taxpayers. But the thresh holds weren't indexed for inflation. In 2007, it is estimated that it will impact 40 million taxpayers.

What is AMT? It is an alternate way of calculating your income and your income tax. It is very complicated. It involves what are called "preference items". Such as charitable contributions, capital gains and many other items. You only pay AMT tax when it is larger than your normal income tax.

I do not have a simple answer as how to avoid it ... other than to have your tax advisor check the impact of a proposed asset sale or large charitable contribution before you make them.

Answer 2

The alternative minimum tax started out as a surcharge to close some loopholes to ensure that high income people paid taxes. Unfortunately, it's now hitting some upper middle income people, especially if they have high deductions. You avoid it by keeping your income, your deductions, or other tax preference items below the level where it kicks in.

Answer 3

Keep your income below its limits. That's not hard for most people.