Taken from the Turbo Tax page:
What is the Alternative Minimum Tax (AMT) and Do I Have to Pay It?
Updated: 12/28/2010
Article ID: GEN12369
In recent years the AMT has threatened to hit more taxpayers than originally intended
In late December of 2010 Congress updated the Alternative Minimum Tax (AMT) exemption amount for 2010 and 2011 tax filers.
Without this new change, an estimated 21 million additional households would be subject to the AMT.
Taxpayers who fall under the AMT pay an average of $2,000 in additional federal income taxes than they would without this alternative tax.
For more information on the AMT, please read below.
So what is the AMT and why is it such a big deal?
The AMT was conceived in 1969 as an alternative tax to ensure that the wealthiest taxpayers, even with their big deductions and loopholes, didn't avoid paying income taxes.
But because the tax was not adjusted for inflation, it has increasingly reached down into the middle class as wages increased with inflation over the years.
In recent years, including 2010, Congress passed legislation providing a temporary fix to keep the AMT from spreading to taxpayers who aren’t considered wealthy.
As the name says, it’s an “alternative” tax. It’s calculated at the same time as your regular taxes. Whichever tax is greater, you must pay that.
If the alternate method results in a higher tax, the difference between it and your standard tax bill is the AMT.
As always, TurboTax will calculate this as you’re doing your taxes and let you know if you owe this tax.
Who is most at risk for the AMT?
Taxpayers who have higher than average incomes, are married and have more than two children, own a home and live in a state with high incomes taxes, such as California, New York and Michigan.
The AMT affects such taxpayers because it won't let them count certain deductions that would otherwise lower their taxes, such as dependents or children, state income taxes, property taxes, interest on second mortgages or home-equity loans and high medical expenses.
We wish we could tell you the exact income level, or the amount of deductions, that cause the AMT to kick in. Unfortunately, we can't, because the AMT simply doesn't work that way.
How can I avoid it?
Most people affected by it can’t get around it. The AMT was designed to close loopholes - so it's very difficult to avoid.
For tax returns not affected by the AMT, you are certain tax benefits that reduce your taxable income and thereby your taxes owed.
With the AMT, these benefits are reduced or eliminated.
You do get a deduction known as an AMT exemption.
The exemption amounts for 2010 are $47,450 for individual taxpayers, $72,450 for married taxpayers filing jointly and surviving spouses, and $36,225 for married couples filing separately.
For 2011 they are $48,450 for individual taxpayers, $74,450 for married taxpayers filing jointly and surviving spouses, and $37,225 for married couples filing separately.
Turbo Tax
Read more about how Turbo Tax defines and deals with the AMT online here.
Compare Turbo Tax Editions
