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What does AMT mean?


AMT is the Alternative Minimum Tax, a measure passed by Congress in 1982 to ensure that taxpayers who otherwise would have a lot of write-offs still pay a certain amount of income tax. Say you were running a small business that could record a huge net operating loss under conventional tax rules due to some accounting phenomenon like accelerated depreciation. The Internal Revenue Service would require you to calculate your tax liability the standard way and then under AMT rules. Your tax bill would be the higher of the two.

Certain potentially large deductions still apply under AMT, even if the rules for calculating them are a bit different, such as for mortgage interest or medical expenses, so individuals without business income tend not to be susceptible to AMT. Some deductions don’t apply at all, such as for state and some other taxes, and there is no standard deduction or personal exemptions allowed. To compensate for that, there is a hefty exemption from tax under the AMT formula that is adjusted annually for inflation. The 2013 exemption is $51,900 of income for individuals and $80,800 for married people filing jointly. The figures for this year are $52,800 and $82,100. Income above those levels is taxed at 26 percent or 28 percent, but the exemption is phased out for taxpayers with incomes above certain levels, which raises the effective tax rate that they pay.

-Conrad de Aenlle