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What Is the Alternative Minimum Tax?

The alternative minimum tax (AMT) is a different way to measure how much one owes in federal income tax. It exists to make sure that people are not dodging paying their fair share of income tax by taking unfair advantage of too many tax deductions.

There are a few things that are looked for on tax filing forms when deciding whether the AMT applies to a certain individual taxpayer. If the taxpayer has large capital gains that year, it is possible that the alternative minimum tax will apply to him. Also, large amounts in deductions, such as large medical deductions or other itemized deductions, or exemptions may make you applicable for the AMT. If you normally pay a lot in local and state taxes, you may also have to pay the AMT.

Are There Any Ways to Avoid or Reduce the AMT Payment?

For personal expenses, such as the deductions you normally get for the number of dependents you are filing for, there is no way you can reduce that amount.

In terms of paying state and local taxes, you should remember that the alternative minimum tax does not necessarily need to be paid every year. If you want deductions for large amounts paid in state and local taxes, try to see if you can arrange to pay for those taxes only in years where the AMT does not apply (i.e., pay off multiple years of state and local taxes all in one paying period). You may have to pay some kind of penalty fee for this, but it could still be less costly than paying the AMT.

Medical expenses are normally deducted for regular tax purposes if they comprise 7.5% of your adjusted gross income. However, they cannot be deducted under the alternative minimum tax unless they make up 10% of your adjusted gross income. You may want to try to work out a way to pay medical bills so that you will be taxed for them only on years when the AMT does not apply.

Of course, you cannot plan all expenses, such as medical emergencies that happen to crop up, but you can definitely take advantage of regularity of some expenses by factoring them into your AMT planning.

Who Can I Consult if I Feel I Need Help with My AMT Planning?

The tax system itself is incredibly complex, much less figuring out when a certain kind of tax will apply and if it applies to your situation. For help you may want to consult a tax attorney. Your attorney can help you determine when and how much you should be paying, if you have any alternatives that might help reduce your costs.

Photo of page author Kristen Johnson

, LegalMatch Legal Writer

Last Modified: 06-03-2015 09:32 AM PDT

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