IRS/what is AMT?

Question

When is is used? How?

Answer 1

The Alternative Minimum Tax is a tax designed to ensure that wealthy people pay at least some tax by disallowing some deductions for people whose income is above a certain level.  Since inflation has caused a rise in salaries,  it sometimes ends up applying to people who are upper middle class but not wealthy.

Answer 2

The AMT works on the premise that congress intended taxpayers to use a limited number of deductions/credits/preferences to avoid paying tax...so when a taxpayer successfully lowers his/her tax "too much," the AMT calculates a minimum tax bill that they are required to pay.

Classic causes:

1.  State and local taxes.

2.  Unreimbursed employee business expenses.

3.  ISO income.

4.  Too many dependents.

5.  Use of Heloc to pay off credit  cards.

6.  Huge spike in income for one year.