The Alternative Minimum Tax (AMT) is a parallel federal income tax system created to ensure that all taxpayers (especially those with more wealth) pay at least some level of income tax. You must pay the higher of the amount calculated by either your regular income tax or the AMT. The AMT adds back non-taxable income and it erases some deductions. The result is more taxable income.
The AMT Involves a Separate Tax Form
The AMT is a separate tax calculation from your regular return. Unless you have a professional prepare your taxes, you may not even be aware that you owe it. IRS Form 6251 lets you know if you qualify for and must pay the AMT. If you qualify, it tells you how much you owe.
Form 6251 Increases Your Income
Form 6251 eliminates certain deductions, exemptions, and credits. If you had any income that would normally be excluded from taxation, such as tax-exempt interest, Form 6251 adds this to your other income as well. This increases your taxable income, and you'll have to pay either 26 or 28 percent of this figure as an alternative minimum tax. After you calculate the tax, you must enter it on Line 45 if you file a Form 1040 return. It adds to any other taxes you may already have owed.
Wealthier Taxpayers Qualify
Typically, the AMT affects only taxpayers who earn more than $75,000 and who have a lot of deductions, such as for mortgage interest on a second home or several dependents. Taxpayers who are barely making ends meet don't usually have to worry about it. If you think you might be subject to the AMT, speak with a tax professional or complete Form 6251. If you qualify for AMT and don't pay it, and this is discovered in an IRS audit, you'll be liable for both the tax and interest and penalties.
The IRS allows you to reduce your AMT income before calculating the tax due. After you figure out your adjusted AMT income, you can take a $72,450 exemption from it if you're married and filing jointly, as of the 2011 tax year. You can subtract $42,450 if you're single. You'll pay the AMT on the balance.
You May Get Credit for Past AMT
If you had to pay AMT in previous years, but you manage to escape it in the current tax year, the IRS allows some qualified taxpayers a special minimal tax credit. Restrictions apply, however, and not every AMT taxpayer qualifies. If you had to pay an AMT on a previous return, speak with a tax professional to find out if you can claim the credit.
A Tax Lawyer Can Help
The law surrounding who must pay Alternative Minimum Tax is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a tax lawyer.