What Is AMT Tax?
The alternative minimum tax, or AMT as it is more commonly referred, is an extra tax that was originally designed to make sure people with high salaries could not avoid paying taxes or only a small tax. Today, almost anyone, including those who do not claim special tax benefits, and those who don’t have a high income, are affected by AMT. Only Congress can make changes.
The AMT is named after the way this tax functions. There are Alternative rules for calculating income tax. These rules were designed to make sure a Minimum amount of Taxes were paid. When you file your income tax returns, you will be able to determine if you are paying this minimum amount, according to your income. If you are not, then you will need to pay the difference, which is called AMT.
One of the biggest concerns about the AMT is that taxpayers do not know if they will have to pay AMT until their taxes are calculated for the year. You may have to pay AMT because of one item or several small items. Paying AMT one year does not necessarily mean you will need to pay the following year.
In order to determine the amount of AMT you will have to pay, you must first calculate your taxes using the AMT special rules, which are various tax benefits reduced, exemptions are added and percentages vary for calculating taxes. Regular tax rates are 10 percent to 35 percent of income; whereas, AMT rates are 25 percent to 28 percent. Once you have the final figure, you will need to compare it to the amount of regular taxes you would owe. If the regular tax is higher, you do not need to pay AMT. If the regular tax is lower, you will be required to pay the difference between the two taxes, in addition to the regular tax.
Accountants and CPAs can help you calculate your taxes and let you know if you have to pay AMT. As an example, pretend that your income tax is $67,000 on a regular scale. With the AMT rules, your income ends up being $59,000. Since this amount is lower than your regular tax, you will not have to pay AMT. Alternatively, if your income tax remains $67,000 and the calculated AMT tax is $78,000, then you will need to pay difference, which is $11,000 in addition to the taxes you pay for the $67,000.
When completing your annual income tax return, fill out a 6251 Alternative Minimum Tax Form. In the following years, after paying AMT, you may be required to estimate tax payments or get a special credit for your payment. Though this process sounds a bit complicated, a tax professional can determine what you owe. If you need a reputable tax professional, search the business listings on MerchantCircle. Any accountant or tax professional registered with this site will help you determine if you need to pay AMT.