Alternative Minimum Tax
What is it?
An extra tax some people have to pay on top of the regular income tax. Originally intended to prevent people with very high incomes from using special tax benefits to pay little or no tax, the AMT reaches more people each year.
Will it affect you?
Unfortunately, almost anyone is a potential target for this tax. You can have AMT liability because of one big item on your tax return, or because of a combination of many small items. Some things that can contribute to AMT liability are mundane items that appear on many tax returns, such as a deduction for state income tax or interest on a second mortgage, or even your personal and dependency exemptions.
AMT Liability
1. Determine the amount of tax that you owe under a different set of rules that include reduced tax benefits, an AMT exemption, and AMT tax rates.
2. Compare with your regular tax- if your regular tax is higher, you do not owe AMT. If the AMT is higher, you owe the difference.
AMT Credit
If you do not have AMT liability this year but you have in the past, you can claim a portion of that past credit, reducing your regular tax.
Subtract the AMT tax from your regular tax. The difference is the amount of credit you can claim (assuming that you have paid that much in the past)
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