While I was out of town visiting relatives for Christmas, President Bush signed a bill freezing the alternative minimum tax (AMT) for one year.

This will provide relief to more than 20 million taxpayers that would have faced the AMT this year alone! Last year 4 million paid the AMT, and this year it was projected that 25 million people would be held to the fire. To put it in the most basic terms, the AMT would cost you an extra $2,000 if you were subjected to it. Yeah, that would’ve stung a bit.

Evidently, the bill was passed by Congress just before the holiday recess, and the President signed it right away.

AMT FOR DUMMIES

The alternative minimum tax (or AMT) is an extra tax you might pay on top of your regular income tax. Dreamed up in 1969, the premise behind the idea was to prevent people with very high incomes from using special tax benefits to pay little or no tax. But for various reasons the AMT reaches more people each year, including some people who don’t have very high income and some people who don’t have lots of special tax benefits.

The AMT provides an alternative set of rules for calculating your income tax, and in effect, these rules determine the minimum amount of tax that someone with your income should be required to pay. If you’re already paying at least that much because of the “regular” income tax, you don’t have to pay AMT. But if your regular tax falls below this minimum, you have to make up the difference by paying alternative minimum tax.

There is a lot more to it, of course, and if you want to read more about it, check out a Corner Office post from last year about the AMT. However, because Bush froze the AMT for the year, you don’t have to worry about it at all. Let’s just hope Congress can fix the AMT permanently… Since it’s an election year, I’m not holding my breath.

I’m already looking forward to comparing this years tax return to last years return in which I ended up forking out an extra $600 due to the AMT!

Taxes Alternative Minimum Tax, AMT, Taxes