Alternative Minimum Tax (AMT)

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This is a form of income tax that was created several decades ago and then largely forgotten, but in the last few years has become a source of controversy. The tax was originally introduced because it was felt some wealthy people were managing to avoid paying any income tax by clever use of things like tax credits and tax deductions. But the levels at which the alternative minimum tax applied were not adjusted for inflation, and so as time passed and incomes rose, more and more people became potentially affected by the tax, including people who do not think of themselves as wealthy. This tax is too complicated to explain in detail; however, here are some categories of people who might be affected by the tax: (1) people with lots of tax deductions, (2) large families, (3) people in states with high state income tax, (4) people who have had significant capital gains. This is not a complete list of categories and is liable to change, as the AMT is under constant review. It's estimated that in 2007 about 4 million people were affected by this tax, that's up from 1.7 million in 2001. Many people would like to see this tax abolished, but the federal government would lose a lot of revenue by eliminating it. The federal government has been enacting "patches" one year at a time that keep raising the exemption point for taxpayers who may otherwise be pushed into paying the AMT because of inflation.