Taxes are tricky: anyone who earns income should be paying federal income tax. After all, that’s how our government pays for lots of things. Money doesn’t come from nowhere and as US citizens we pay tax to support our federal government. It’s our duty as citizens and we should be proud to do so.
Everyone Seeks Tax Advantages
Enter reality. Nobody likes taxes and we all try to find ways to pay as little as possible. We hire expensive accountants. We pay others to prepare our federal tax forms for us, in hopes that they will find us a larger IRS refund or a smaller tax bill, whatever the case may be.
The way these accountants find you ways to save money on your federal tax bill is mainly through tax deductions and tax credits. There are a lot of them out there, and of course it’s your right to find all the deductions and credits that apply to you. You definitely don’t want to miss even just one!
An Unfair Tax System?
Some accountants are so good a finding tax advantages that their clients end up paying very little taxes. It winds up being not such a fair taxation system after all. Those of us who make more money can afford better tax accountants who will find ways to reduce taxes. The rich end up paying a lower portion of their income towards taxes while middle class and poor taxpayers pay a higher ration of their income to the IRS. Not fair!
Enter the alternative minimum tax (AMT). The IRS pretty much said “phooey” to those accountants and created a bar below which no taxpayer can go below in terms of paying their share. Even if someone qualifies for every tax deduction and tax credit ever created by the IRS, thus reducing the tax burden to a teensy amount, the alternative minimum tax makes sure they pay a fair amount…regardless of any long list of tax advantages they might have racked up.
How The Alternative Minimum Tax Works
If you make over a certain amount (around $52,000 for individuals in 2013) and claim lots of deductions and exemptions, you may have to figure your federal tax bill twice. Once in the regular way and again using the alternative minimum tax. If you’ve lowered your tax bill by a lot through deductions and exemptions then chances are you will pay more than you thought, because of the AMT.
Figuring your AMT is basically figuring your tax without the personal exemption and the standard deduction. If you are subject to the AMT you also will not be able to deduct state and local taxes. This ensures that you don’t cut your tax bill down so low that you are paying negligible or no tax at all. You will use IRS form 6251 for the AMT.
There is something called the IRS Assistant, which is found on the IRS website. It allows you to determine whether you will be subject to the AMT, without having to actually do your taxes. It’s located here on their website.