Alternative Minimum Tax


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Alternative Minimum Tax (AMT)

A federal tax aimed at ensuring that wealthy individuals, estates, trusts, and corporations pay a minimal level income tax. For individuals, the AMT is calculated by adding adjusted gross income to tax preference items.

Alternative Minimum Tax

A tax in the United States intended to be levied on very wealthy persons who are eligible for so many deductions that they would otherwise have little or no tax liability. To arrive at the AMT, one adds certain deductions back into a person's adjusted gross income and then subtracts the AMT exemption, which results in the alternative minimum tax income. The taxpayer then pays a percentage of the alternative minimum tax income rather than his/her AGI. The AMT is controversial in the United States because it is not indexed to inflation, meaning that upper middle class families are gradually becoming subject to it, rather than only the very wealthy. See also: Tentative minimum tax, Bracket creep.

alternative minimum tax (AMT)

A federal tax on taxable income as adjusted for specific tax-preference items, such as passive losses from tax shelters and interest paid on certain municipal bonds. The intent of the tax is to ensure that nearly all individuals pay at least some tax on their incomes. The alternative minimum tax is most likely to apply to individuals with high incomes when a relatively large portion of their income is sheltered from taxation under normal reporting. Also called minimum tax. See also private activity bond.
Case Study Municipal debt issues sometimes contain both AMT and non-AMT bonds. This combination is especially prevalent when public housing authorities issue debt securities. In April 2000 the Georgia Housing and Finance Authority issued $40 million of single-family mortgage bonds with maturities that ranged from June 1, 2001, to December 1, 2031. The AAA-rated issue included approximately $38 million of bonds that paid interest subject to the federal alternative minimum tax. The remainder of the bonds were of the non-AMT variety. AMT bonds are less desirable to own than non-AMT bonds because of the potential tax liability resulting from interest payments received. Because interest on AMT bonds is considered a preference item in calculating the alternative minimum tax, AMT bonds tend to have higher yields compared to non-AMT bonds from the same issue. In the case of the Georgia Housing and Finance Authority issue, AMT bonds maturing on June 1, 2011, provided buyers with a yield of 5.55%, while non-AMT bonds from the same issue maturing on the same date offered a yield of 5.25%. AMT and non-AMT bonds maturing on other dates offered a similar yield difference. The 30-basis point yield advantage of the AMT bonds was a bonus for investors who did not have to worry about paying the alternative minimum tax.

Alternative minimum tax (AMT).

The alternative minimum tax (AMT) was designed to ensure that all taxpayers pay at least the minimum federal income tax for their income level, no matter how many deductions or credits they claim.

The AMT is actually an extra tax, calculated separately and added to the amount the taxpayer owes in regular income tax. Some items that are usually tax exempt become taxable and special tax rates apply. For example, income on certain tax-free bonds is taxable.

Increasing numbers of taxpayers trigger the AMT if they deduct high state and local taxes or mortgage interest expenses, exercise a large number of stock options, or have significant tax-exempt interest.

alternative minimum tax

Tax reform enacted in 1969 as a result of the increasing financial burden of the Vietnam War.It was designed to impose a flat tax upon wealthy individuals who used all available tax shelters and loopholes in order to avoid paying any taxes at all.The treasury secretary at the time, Joseph Barr, warned against a taxpayer revolt once it became widely known that the country had 155 citizens who made over $200,000 per year but paid no income taxes at all,and 20 of them were actually millionaires! His predictions were accurate; more people wrote their congresspersons to complain about the 155 “tax cheats”than wrote to complain about the Vietnam War.

To remedy the situation, Congress revised the Internal Revenue Code so that complex calculations must be performed as if certain tax preference items were not deductible and then a minimum tax imposed on that figure so that “wealthy”individuals would pay their fair share of the tax burden.The problem with the system is that it is not indexed for inflation,so a 1969's wealthy individual is today's typical two-income middle-class family.The New York Times predicts that, by the year 2010, nearly 30 million taxpayers will have to pay the alternative minimum tax. There is increasing pressure to abolish the tax entirely,or to revise it to provide relief for middle-class Americans.

Alternative Minimum Tax (AMT)

A method of computing tax under which some of the income and deductions reported on the forms and schedules filed with your tax return are figured differently or disallowed. For example, interest on certain tax-exempt bonds is taxable for the alternative minimum tax, certain itemized deductions are not allowed when figuring the alternative minimum tax, and the alternative minimum tax has its own exemption amount, not based on the number of exmptions claimed on your tax return. A taxpayer pays the larger of the "regular tax" or the alternative minimum tax. The alternative minimum tax is computed on Form 6251.
References in periodicals archive ?
Companies subject to the alternative minimum tax face additional limitations on foreign tax credits and losses that specifically are designed to ensure the payment of a minimum amount of U.S.
SFAS 109 requires use of the regular tax rate in all cases rather than allowing use of the alternative minimum tax rate for those taxpayers that expect to pay alternative minimum taxes in the future.
* Reformed income tax--This would simplify the individual income tax by repealing the alternative minimum tax (AMT), consolidating and simplifying savings incentives, eliminating phase-ins and phase-outs and retaining only two filing statuses and rate schedules.
Because the Internal Revenue Code's Passive Activity Rules and Alternative Minimum Tax Regulations severely limit and, sometimes, prohibit the use of tax credits by individuals, many building owners syndicate the tax credits to a third-party institutional investor who can utilize the tax credits.
We wish to stress today proposals relating repeal of the alternative minimum taxes. When the alternative minimum tax was originally en acted in 1969, it was targeted at high-income individuals who paid no income taxes.
1211 and 1212 do not apply for purposes of the alternative minimum tax (AMT).
Commissioner addressed the deductibility of these taxes when computing a tenant-shareholder's alternative minimum tax (AMT) liability.
* Limiting the number of taxpayers affected by the alternative minimum tax;
The Act also extends marriage penalty relief and child tax credits through 2010, increases assistance to military families, extends alternative minimum tax relief through 2005, and broadens and extends the disclosure authority relating to terrorist activities as well as provisions allowing the disclosure of tax return information for student loan repayment administration.
These tax credits can be either used to offset the building owner's federal tax liability or transferred to an institutional investor in exchange for additional equity capital that can be utilized for long-term financing of the project Because the Internal Revenue Code's Passive Activity Rules and Alternative Minimum Tax Regulations severely limit and, sometimes, prohibit the use of tax credits by individuals, many building owners syndicate the tax credits to a third-party institutional investor who can utilize the tax credits.
For example, while FEI certainly supports any effort to eliminate the corporate alternative minimum tax (AMT)--and will remain active in the broad-based coalition working to achieve this--we recognize that the debate will require enormous resources and will only be won by the collective efforts of numerous business groups.
Since 1969 the Internal Revenue Code has included an alternative minimum tax (AMT), originally designed to prevent wealthy taxpayers from claiming so many deductions that they wound up paying little or no taxes.

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