Changes to the Alternative Minimum Tax 2009 and 2010

The Alternative Minimum Tax or AMT is a federal income tax system. Alternative Minimum Tax tables exist for both individual taxpayers and corporations. The AMT first came into use in 1970 from the Tax Reform ACT of 1969. It's original purpose was to target extremely high income taxpayers that paid little to no federal taxes due to deductions and other credits on their tax forms.

The AMT is considered a parallel tax system. Taxpayers that fall into AMT tax levels must figure the amount of taxes they owe with both regular tax methods and AMT tax tables and must pay the higher amount of tax due. The Alternative Minimum Tax system provides larger exemptions and lower tax rates but considers much more income to be taxable than regular federal tax methods.

Many changes have been made to the AMT since it was first introduced. The percent rate for taxes changed from 21 percent to 24 and then to 26 percent. The current rates are between 26 and 28 percent. Unfortunately over the years many taxpayers that would otherwise qualify to file regular federal taxes have been caught up in the AMT. Changes have been made in 2009 to improve the Alternative Minimum Tax system.

For the 2009 tax year exemption levels have been raised to $70,950 for married couples filing jointly. For single and HOH filers this exemption has been raised to $46,700. For married couples filing separately the exemption for 2009 is $35,475. Had this change not been made close to an additional 28 million taxpayers might have been added to the list that are required to file an AMT return. This change is expected to continue into the 2010 tax year.

Interest from private bonds that are issued in 2009 and 2010 will also be excluded from taxable income. The AMT exemption amount for a child has been increased to $6,700. This applies to children who have unearned income and are taxed at their parent's tax rate.

The qualified motor vehicle tax deduction for state sales tax, local sales tax and excise taxes on a new vehicle purchase may be used as a deduction on the AMT tax forms. There are also changes to the alternative tax net operating loss deductions for business filers.

TurboTax offers a free tax calculator to help individuals determine if they are subject to the Alternative Minimum Tax. This can be found at the third reference link for this article. The AMT is a complicated system and solid tax knowledge is needed to complete the tax forms for it.

References:

http://harborfi.typepad.com/tax/

http://www.irs.gov/formspubs/content/0,,id=178012,00.html

http://turbotax.intuit.com/tax-tools/tax-tips/irs-tax-return/5519.html