Gotcha: The Alternative Minimum Tax
The Alternative Minimum Tax was established in 1969 as an alternative tax system for individuals that were able to avoid paying taxes while still earning above average incomes. The system is not indexed to inflation and over time has been applied to more and more medium income households. Recent changes to the tax code have attempted to minimize this negative and unexpected event.
Taxpayers find when their taxable income reaches a certain level and they have the right mix of tax adjustments that the AMT applies and increases their taxes for the year. Accountants are at times able to move spouses out of the AMT tax by filing them separately and shifting mortgage deductions and child deductions to the spouse will less income.
For 2009, the AMT levels were raised which will help reduce it’s affect on middle America. Based on your filing status the levers are now $70.950 for married couples filing jointly and widows/widowers, $46,700 for single filers and heads of households, and $35,475 for married couples filing separately. There are a couple deductions for AMT including tax on the purchase of a new automobile, and state and local taxes.