Alternative Minimum Tax is a part of the federal income tax system. AMT may apply to those personal income tax payers falling within specified parameters. Besides corporate income tax payers may also be liable to AMT
The Tax Reform Act of 1969 that came into force in 1970 introduced the AMT. It targeted high income tax payers who availed of so many tax benefits that they had negligible or no income tax liability.
The AMT disallows many deductions and exemptions allowed in computing regular tax liability. The Tax Reform Act of 1986 substantially enlarged the scope of AMT to disallow further deductions and exemptions.
The minimum rate of AMT for those who owe personal income tax is either 26% or 28% according to the concerned taxpayer’s ‘alternative minimum taxable income’. In contrast the minimum rate of AMT for corporate taxpayer’s is only 20%.
Taxpayer’s mostly affected by AMT are those with more ‘tax preferred items’ like long term capital gains, accelerated depreciation, percentage depletion, specified tax credits, certain personal exemptions and tax deductions. These ‘ tax preferred items’ are added back to the income at first; then AMT permissible deductions are subtracted from that figure to arrive at the taxable AMT income.
Since the AMT is not indexed to inflation, over time the threshold real income declines bringing more and more taxpayer’s within the AMT network.
(More:http://www.house.gov/jec/tax/amt.htm)
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