A few years ago, AMT (alternative minimum tax) was a hot topic. The problem was that while there had been great tax breaks added, especially if you had a business, AMT, the alternative way of calculating your income tax, created a minimum tax. And as inflation pushed income up, AMT’s method of calculation did not change.
When it was first enacted, anyone making over $50,000 or so would be subject to AMT. That made sense back then because $50,000 meant a high income. But now income and spending has increased with inflation and so AMT ceases to be relevant.
We thought we had it handled a few years ago. At least the furor over it died down as the clock got set back on AMT. AMT didn’t go away, it just got reset.
In 2013, 3.9 million taxpayers will pay AMT. It will increase their tax bills by $6,617 this year. In 10 years, 6.1 million taxpayers will pay AMT.
The problem with AMT is that you may have the best tax plan in the world for finding deductions, but if you ignore AMT planning, your plan will cost you more in taxes. A well-rounded tax plan includes planning for income transfer, income characterization change and income splitting. That’s the only way to defeat AMT.
More information on the growing problem of AMT: