How does the AMT work?
Briefly and simply the AMT tax system is an alternate method of calculating our income tax. Each year we are requried to calculate our income tax liability in two very different ways and then to pay the higher amount. The AMT system applies both itemized deductions and its own standard deduction. (This is highly simplified, and minimized for the majority of taxpayers.) Here is how the process effectively works: • Begin with your Adjusted Gross Income, calculated just like in the regular tax system. • Subtract unreimbursed medical expenses that exceed 10% of your AGI. (The regular tax system allows for these expenses in excess of 7.5% of your AGI.) • Subtract deductible interest expense. • Subtract deductible contributions. • Subtract a standard deduction based on your filing status. The AMT system refers to this as an exemption. • Multiple the remaining amount by 26%, or for very high incomes, 28% (less an offset that causes the tax rate to be 26% for the first amount of income). That
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