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Alternative Minimum Tax & The Fiscal Cliff - What you Need to Know

12/26/2012

 
The alternative minimum tax (AMT) was created in 1969 in an effort to ensure that wealthier Americans pay a minimum tax by preventing them from using credits, deductions and other shelters for tax avoidance purposes. The AMT is not indexed for inflation, so it needs to be updated, or "patched" every year.
 
Although the AMT was created for a specific purpose, its design and function is beginning to fail. For example, since tax bills of the rich are most likely over the AMT rates, the AMT has ceased to affect them. Instead, the inflation-adjusted AMT has begun to target 4 million to 5 million taxpayers with annual incomes between $200,000 and $1 million. Without an adjustment for inflation (or a "patch"), the AMT will possibly affect 28 million taxpayers this year, reaching deeply into the middle class – and increasing taxes for families it was never meant to reach.
 


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