“For more than three decades, the individual income tax has consisted of two parallel tax systems: the regular tax and an alternative tax that was originally intended to impose taxes on high-income individuals who have no liability under the regular income tax.” [1]
Current law imposes an alternative minimum tax (AMT) only on individuals. “The stated purpose of the alternative minimum tax (AMT) is to keep taxpayers with high incomes from paying little or no income tax by taking advantage of various preferences in the tax code.” [2]
The parallel tax structure to the regular income tax law requires individuals “to recalculate their taxes under alternative rules that include certain forms of income exempt from regular tax and that do not allow specific exemptions, deductions, and other preferences.” [3]
Generally, the AMT is an amount that is the excess of the “tentative minimum tax” over the regular income tax.
Tentative minimum tax is equal to the sum of (1) 26 percent of so much of the taxable excess as does not exceed $175,000 ($87,500 in the case of a married individual filing a separate return) and (2) 28 percent of the remaining taxable excess, which is essentially an individual’s taxable income adjusted to take into account certain specified preferences and adjustments (also known as alternative minimum taxable income (“AMTI”)) minus the exemption amount. To read this article excerpted above, please access http://www.advisorfyi.com/2010/12/obama-tax-cuts-alternative-minimum-tax-exemption-extensions/
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