BUSINESS

Consider alternative minimum tax liability

Personal Finance. By Katherine Vogt, AMNews staff. Feb. 9, 2004.

A tax calculation that originally was designed to close loopholes used by the wealthiest taxpayers is increasingly being assessed on physicians and other professionals, experts say, forcing them to pay more than they would owe under the regular tax system.

In fact, use of the alternative minimum tax, or AMT, is growing so fast that the Internal Revenue Service's National Taxpayer Advocate, Nina Olson, identified it in a recent report to Congress as one of the top two problems faced by taxpayers.

"[AMT] now affects substantial numbers of middle-income taxpayers and will, absent a change of law, affect more than 30 million taxpayers by 2010," Olson wrote in the report.

While its reach expands, experts say many taxpayers are being caught by surprise by the AMT. They say it is a complex assessment that few taxpayers have seen before or understand.

"It's a problem because there are many people who are not aware of it and, especially if you're trying to do your own tax return, you can easily fall into the AMT trap," said Martha Bethea, an accountant and director with CBIZ Accounting Tax and Advisory Services of Northeast Ohio.

Bethea said the AMT is a second tax calculation that taxpayers are supposed to include with their tax returns. It calculates taxes owed using a different system of deductions and exemptions than the regular tax system.

Created several decades ago to prevent wealthy taxpayers from using tax avoidance schemes, it has, in recent years, been ensnaring more average taxpayers, leading critics to say it must be retooled to serve its intended purpose.

[...]

Full text of AMNews content is available to AMA members and paid subscribers.

Access details

Join the AMA