Via LearnVest By Alden Wicker ~
The alternative minimum tax ranks up there with eating a bad clam or having a cavity drilled—it’s something unpleasant that you really want to avoid if possible.
The AMT, which is a minimum amount of taxes you have to pay, was created in 1969 as a way to make sure that very wealthy people with access to a lot of write-offs and tax shelters would pay their fair share of taxes.
But this tax isn’t indexed for inflation the way many parts of the tax code are. As a result, people we wouldn’t necessarily consider wealthy now fall under it. Middle and upper-middle class taxpayers with large write-offs—a big mortgage, heavy local taxes or several children, for example—can find themselves paying the tax, which works by taking away deductions and adding back in items that are usually tax-free, for a higher tax bill overall.
Congress has been “patching” the AMT for the past few years by passing temporary increases to the income thresholds where it kicks in, and this year finally made the patch permanent. But it’s still an annual booby trap for a growing number of middle-class taxpayers. The general rule of thumb is that if you have a large amount of itemized deductions, you should have your accountant calculate the AMT for you.
To find out for yourself if you fall under it, use this tool from the IRS. If you find out you have to pay the AMT, it’s pretty difficult to avoid. An accountant might be able to help you come up with strategies for steering clear of it and can look for ways to minimize your tax burden this year. She can also help you create a strategy for avoiding the AMT next year, if possible.
Need help filing your taxes this year? Take our free, five-day Ace Your Taxes Bootcamp, which will help you decide whether to itemize your deductions and whether you need an accountant, plus show you how to get all the credits you deserve. Plus, there’s a discount to TaxACT’s federal and state filing software!
LearnVest is the leading lifestyle and personal finance website for women.