AMT (the Alternative Minimum Tax)

Computed on Federal Form 6251 and California Schedule P

Recalculated Taxes: To make sure “high roller” taxpayers (i.e. taxpayers with substantial income), pay their fair share of taxes, the Alternative Minimum Tax (AMT) was invented. The AMT completely recalculates the tax entire tax return after eliminating various deductions that the government considers “loop holes” such as: certain itemized deductions, depreciation, depletion, certain passive losses (such as rental losses).

The problem: what the government originally considered high income (when the AMT was first implemented) has now become middle class income … and lots of regular folks are getting caught in the AMT tax trap.

If the AMT calculation results in a higher tax than the regular income tax, then the difference is added to the regular income tax on Form 1040. Hence, the taxpayer pays the greater of the AMT or the regular tax.