Alternative Minimum Tax: The More You Work, the More You're Taxed
With the normal income tax rules, terms such as, deductions for dependants, medical expenses, interest on mortgages and state and local taxes disappear totally with the Alternative Minimum Tax. The Alternative Minimum Tax does not allow standard deductions, personal exemptions and a lot of itemized deductions. As well, certain income that is not subject to regular tax, is added for Alternative Minimum Tax.
Originally, the Alternative Minimum Tax was initiated to make sure that the wealthy could not find ways to not pay taxes. But, the Alternative Minimum Tax exemption amounts are being lowered, thus reaching into more and more upper-middle class homes. For example, in 2007 the standard Alternative Minimum Tax amount was:
$44,350 for single and head of household filers
$66,250 for married filing jointly, and qualifying widows/widowers
$33,125 for married filing separately.
But, these amounts are decreasing for the 2008 tax year. The exemption amounts will be:
$33,750 for single and head of household filers
$45,000 for married filing jointly, and qualifying widows/widowers
$22,500 for married filing separately.
In a nutshell, this means that many more people will be paying Alternative Minimum Tax.
The IRS website has a calculator for individuals to use to help people figure out if they have to pay the Alternative Minimum Tax. For people who do not have access to the internet, on page 36 of the Instruction Booklet for Form 1040, there is instructions on how to figure this out for themselves.
If you are subject to paying the Alternative Minimum Tax, there are some planning strategies that you can do, to keep this amount down to a minimum:
1. Examine amount withheld from your pay for State Tax. You want to make sure that you pay enough each pay period so that you don't owe at the end of the year; but at the same time, you don't want to overpay.
2. Don't prepay property taxes. This will help to keep your state and local taxes as low as possible.
It is not hard to figure out your taxes with the Alternative Minimum Tax added on, but it is more work. You might find it much easier and time effective, to purchase a computer software program to help you with your tax preparation, especially as it gets complicated. I have used one for years, and they make doing taxes so much easier.
Resources:
Published by Kathi Downs
I am the wife and mother of three grown sons; and I have 6 precious grandchildren, 3 boys and 3 girls. Reading and writing has always been a passion of mine. View profile
- When Are You Subject to the Alternative Minimum Tax?The purpose of the alternative minimum tax is to ensure that taxpayers who take advantage of tax benefits pay at least some tax. But in effect, the tax is increasingly affecting taxpayers with medium income levels....
- How to Reform the Tax SystemWe need real tax reform and we need it now. Previous attempts have been made at tax reform, but they have only provided band-aid solutions that have still left us with too many quirks, complication, and read tape.
Understanding the Alternative Minimum Tax (AMT)More and more taxpayers are subject to the alternative minimum tax. Learn what it is, if you are at risk, and how to minimize your risk.
AMT Made Simple: Understanding the Alternative Minimum TaxTaxpayers owe the Alternative Minimum Tax whenever their tax liability under the AMT is higher than their tax liability as calculated under the regular income tax. An easy way...- The Alternative Minimum Tax: A Primer on the AMTTips, tricks, and information about the AMT and your tax rate.
- Elimination of the IRS is the Only True Tax Reform Proposal for America
- 12 Last Minute Tips to Help You Pay Less Income Tax
- New Changes in Tax Laws Can Save, Cost Money
- The Top 10 Myths About the Bush Tax Cuts
- Fixing the Alternative Minimum Tax
- The Alternative Minimum Tax Has Been Altered
- 2007 Tax Law Changes
1 Comments
Post a CommentThanks for the heads up! Happy Holidays to you and yours!