Alternative Minimum Tax
By: Charles L. Telk Jr., CPA, Senior Tax Advisor | email
Congress has once again solved the Alternative Minimum Tax (AMT) problem for many taxpayers with the recent Tax Increase Prevention Act of 2007. This fix only applies to the 2007 tax year which means that the issue will once again be front and center during the latter part of the 2008 tax year.
The Alternative Minimum Tax is basically a side-by-side method of computing personal income tax. Many items that an individual taxpayer can take advantage of for purposes of computing their regular personal income tax are reduced or eliminated. The AMT was initiated back in Congress because of the increasing number of high-income individuals that were legally able to avoid paying any income tax. Over the years however, as the rules were not adjusted for inflation, many middle class taxpayers began to fall into the AMT trap.
Without this temporary fix, it was estimated that the number of individual tax payers subject to the AMT would increase from 3 million (2006 returns) to 23 million (2007 returns). So, this is indeed good news for many taxpayers. Unfortunately, it is still estimated that 4 million taxpayers will pay AMT with the filing of their 2007 tax returns.
And for those that will still be subject to the AMT in 2007, there were several changes that should reduce the amount of AMT that is paid. The AMT exemption was increased, and many personal tax credits will now be able to offset AMT as well as regular tax.
For more information about how these changes could affect you, please call us. We’re here to help!