What is the Alternative Minimum Tax

Kevin McCormally: I am Kevin McCormally of Kiplinger's, and I am with Mary Beth Franklin, senior editor of Kiplinger's Personal Finance magazine. You know Mary Beth, there are a lot of alphabet soup in that federal tax code, and today we want to talk about the AMT, the Alternative Minimum Tax. What the devil is that? Mary Beth Franklin: Well, it's a parallel universe of taxes with its own set of rules, that were created more than 35 years ago, to make sure that the very wealthy paid at least some tax. Unfortunately it's never been indexed for inflation, so it is filtered down decidedly to the middle class, instead of a class tax; it's now a mass tax. Kevin McCormally: How many people it caught? Mary Beth Franklin: 3 million now, by the end of the decade, 30 million, and believe it or not, that's one in four taxpayers. Kevin McCormally: So more importantly, who gets caught by the AMT? Mary Beth Franklin: Well, it's surprising, it's the middle, and the upper middle class taxpayers that expected all these great tax breaks, and they are losing the amount to the AMT, because they don't get to deduct things like mortgage interest for home equity loans, state and local property taxes, income taxes, or most importantly, the personal exemption you normally get to deduct for yourself, your spouse, and your kids not allowed under the AMT. Kevin McCormally: So somebody with the big family is in real jeopardy of being hit by the AMT? Mary Beth Franklin: They are actually the most vulnerable victims. Kevin McCormally: How do I know if I am one of the victims? Mary Beth Franklin: Well, the only what to do it is crunch numbers, and that's pretty messy. If you use tax software, you'll get a red flag, if you use a professional tax preparer, they'll let you know, and if you just do your regular taxes, and send it to the IRS, and you owe AMT, they'll send you a bill. Kevin McCormally: That's very generous of them. Mary Beth Franklin: But, they are actually making a little bit easier this year. There's a tool on the IRS website that will help you figure out whether you are an AMT victim. Now frankly, if your situation is complicated, if you haven't send stock options or business depreciation expenses, it's not going to help you, but if you are one of those big families, or people who live in a high-tech state, it will let you know if you're paying the AMT. Kevin McCormally: Thank you very much.