The alternative minimum tax, or the AMT, is a second way to calculate taxes that limits certain kinds of exemptions and deductions. It does make some people’s taxes more complicated, but the reason that it exists is to make sure that some people pay a minimum level of taxes.
To determine if you owe the tax, you take your income from your federal income tax return and add and subtract “preference items” to determine your AMT taxable income. Some kinds of interest that would be excluded from your normal taxable income are included in the AMT calculation.
After that, there are AMT “adjustments” that replace certain kinds of exemptions that appear on your normal taxes calculation. The personal and standard deduction are rolled into a flat exemption, which in 2016 is $53,900 if you’re single, $83,800 if you’re married filed jointly (or if you are a surviving spouse), or $41,900 if you’re married and filing separately. Those exemptions do decrease as your income grows though.
Only certain itemized deductions are allowed in the AMT calculation, or are computed using less favorable rules.
Obviously this is exceedingly complicated and dry, so if you need help determining whether the AMT will apply to you in 2016, give us a call.