Alternative minimum tax

 

 

This bizarre tax has evolved from one that attempted to tax millionaires who were sheltering their income with tax shelters, decades ago, to one that is grabbing more and more taxpayers every year.

The alternative minimum tax is a second way that your taxes are computed. It works by taking the regular taxable income, and adjusting it for certain deductions that are not allowed under the second method.

The most prominent of those deductions that are adjusted out are dependency exemptions, employee business expenses, and other miscellaneous itemized deductions, such as investment advisory fees.

The resulting alternative minimum taxable income is then taxed at 26 or 28%. The resulting tax is compared to the regular income tax, and the higher of the two is paid

When a client is in the “alternative minimum tax range” the effect of this is that those deductions are not deductible. Congratulations!

Bizarre!

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