With tax season around the corner, it is crucial to understand every aspect of your tax liability. One of the important things to consider is the Alternative Minimum Tax, or AMT. Although it has been around for decades, many taxpayers still find it complicated and often end up paying more than they should. This blog post will provide you with comprehensive information on the AMT, so you can make informed decisions and minimize your tax burden.
- What is AMT?
The Alternative Minimum Tax is a parallel tax system that operates alongside the regular tax system in the United States. It was introduced in 1969 to ensure wealthy taxpayers did not exploit deductions and other tax breaks to pay little or no taxes. However, over the years, the eligibility criteria for AMT have broadened, impacting more and more taxpayers.
- Who is subject to AMT?
The AMT aims to ensure that taxpayers who have a higher income but corporate minimal tax liabilities under the regular system pay their fair share of taxes. If you have a high-income level and claim many deductions, you may fall under the AMT bracket. Additionally, tax-exempt interest and certain other deductions, such as state and local taxes, may limit the amount of itemized deductions you can claim.
- What are the current AMT rates?
AMT has a two-tiered tax system where tax rates are either set at 26% or 28% of your taxable AMT income. The threshold amount has also increased to $72,900 for individuals and $113,400 for married couples, which means taxpayers with incomes under this threshold are exempted from AMT.
- Can AMT be avoided or reduced?
While the AMT cannot be avoided entirely, several strategies can reduce the amount of taxes owed. One of these strategies is to accelerate deductions into the current tax year. You can do this by paying expenses such as property tax, mortgage interest, medical expenses, and charitable donations before the end of the year. Additionally, taxpayers can defer income until the following year by postponing projects, bonuses, and capital gains.
For more information, call Taxcite today at 530-203-5605 to schedule a free financial consultation.