Finance Blog

Do I Need to Pay the Alternative Minimum Tax?

Written by Eva Rosenberg on April 4, 2014 in Tax  |   No comments

Once upon a time (back in 1967), there were 155 taxpayers with incomes over $200,000 (more than $1.3 million in today’s dollars) who paid no income tax at all. Twenty of them were millionaires. Because the government needed to fund its programs—including the Vietnam War—the…

tax deductionOnce upon a time (back in 1967), there were 155 taxpayers with incomes over $200,000 (more than $1.3 million in today’s dollars) who paid no income tax at all. Twenty of them were millionaires. Because the government needed to fund its programs—including the Vietnam War—the Alternative Minimum Tax (AMT) was born as part of the Tax Reform Act of 1969.

The AMT was originally implemented to ensure that wealthy people paid enough in taxes. Today, though, the AMT probably affects your household even if you’re not making millions. In 2013, the tax hit couples earning more than $80,800 and singles earning more than $51,900.

When do I have to pay the Alternative Minimum Tax?

The AMT has a stricter set of guidelines than the regular tax. It doesn’t allow certain deductions and exemptions, and your income may be calculated differently. Here are some items that may trigger the AMT for the average taxpayer when filing taxes:

Significant home equity loan (HELOC) interest deductions. When your home equity loan covers personal debts, such as credit card consolidations or that dream vacation you always wanted, you may be able to deduct the interest you pay on up to $100,000 of the loan. And that interest deduction may trigger the AMT.

On the other hand, if you’re deducting the interest on your original mortgage, a refinanced mortgage that replaces only the balance on your original mortgage, or a mortgage to cover the cost of home improvements, you may not be subject to the AMT.

Very high business deductions. I once worked on a tax return for a well-known television director and entered a whole raft of expenses. His union dues for the Directors Guild and other entertainment-related unions added up to nearly $10,000. As I entered the dues and other expenses, including thousands of dollars in legitimate out-of-pocket costs, I noticed that nothing was changing the bottom line. We had entered the AMT trap—no matter how many more expenses he had, his taxes would not change.

I continued to enter his expenses, but I removed very solid deductions—like the union dues. That way, if he were to get audited and those expenses were disallowed, I could replace them with the union dues and still end up with a no-change audit.

You can still take advantage of business expenses to reduce your taxes. If you have a business as well as a job, you might be able to use some of those business expenses on your Schedule C. Make sure the expenses are specific to your business operations, or split the expenses that apply to both your job and your business.

There are other things that will trigger the AMT, such as exercising employee stock options or taking advantage of the small business stock benefits. But these two are the main triggers that surprise the average taxpayer.

Eva Rosenberg, EA is the publisher of TaxMama.com ®, where your tax questions are answered. She is the author of several books and ebooks, including Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com and tax courses you might enjoy at http://www.cpelink.com/teamtaxmama.

No comments yet

Leave a Comment

Name :

Commenting guidelines

We welcome your interest and participation on this forum, but be aware that comments will be published at Equifax's sole discretion. Please don't use this blog to submit questions or concerns about your Equifax credit report or raise customer service issues. Instead, you should contact Equifax directly for all such matters and any attempts to do so in this forum will be promptly re-directed.

Some other factors to consider when commenting:
  1. Registration and privacy. While no registration is required to visit our forum, participants wishing to post a message must register by creating an account. All personal information provided by forum members incident to registration is governed by our Terms of Use and Privacy Policy.
  2. All comments are anonymous. We'll delete your name, e-mail address, and any other identifying information, including details about your investments.
  3. We can't post or respond to every comment - As much as we'd like to, we can't post every comment, nor can we guarantee that we will respond to each individual message. All questions or comments about your Equifax credit report or similar customer service issues should be handled by contacting Equifax directly.
  4. Don't offer specific legal, tax or financial advice. All of the materials on this Site are for information, education, and noncommercial purposes only and this forum is not intended as a means of expressing views or ideas regarding any specific legal, tax, or investment advice. While offering general rules of thumb is both permitted and encouraged, recommending specific ideas or strategies regarding investments, taxes, and related matters is prohibited.
  5. Credit Repair. This blog is not intended as a venue for the discussion or exchange of ideas regarding credit repair or other strategies intended to assist visitors and community members improve or otherwise modify their credit histories, ratings or scores.
  6. Stay on topic. Your comment should be concise and pertain to the specific post in question.
  7. Be respectful of the community. The use of profanity, offensive language, spam, and personal attacks will not be tolerated and egregious or repeat offenders will be banned from future participation. We encourage disagreement and healthy debate, but please refrain from personal attacks on our WordPresss and contributors.
  8. Finally: Participation in this forum may be terminated by Equifax immediately and without notice for failure to comply with any guidelines or Terms of Use. As such, you should familiarize yourself with all pertinent requirements prior to submitting any response through the blog or otherwise. All opinions expressed in this forum are solely those of the individual submitting the comment, and don't necessarily represent the views of Equifax or its management.

Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.

Tax Archive

Stay Informed Sign up for our FREE Equifax email Newsletter