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Hi my name is Bijan Golkar CFP with FPC investment advisory we're going to talk about the alternative minimum tax more commonly known as AMT chances are if you live in a state with high income tax rates like California New York or New Jersey you know exactly what I'm talking about the alternative minimum tax has a lot of misconceptions and can seem overly complicated at times it is my hope today that we can easily explain the basics and give you a better understanding of how it works it can be daunting to read the facts and figures of AMT so we put together a nice easy-to-understand illustration highlighting the key components of the tax system alternative minimum tax was signed into law in 1969 by President Nixon it was initially designed to close loopholes where the super wealthy would pay no to very little federal income taxes unfortunately the legislation is now capturing a growing number of middle-class families such as the Joneses the basic problem with AMT is that it was not designed to take into account inflation and the rising cost of living because of these forces it now applies to hundreds of thousands of middle-class families the alternative minimum tax typically falls on those earning between 150 and 600,000 dollars of annual income in essence AMT is a separate income tax calculation most software systems do this automatically without you even knowing it let's take a look at the Joneses 2021 taxes we prepared check out the blue line this is our normal income tax the red line is their AMT tax calculation when their family income lands in the area with the star you will notice they are now subject to AMT since it is higher than their normal tax wait what how can that tax go higher than their normal tax you asked remember AMT was designed to remove loopholes more formally known as preference items all AMT really does to remove these deductions from its own tax calculations the biggest preference item that gets taken away as the state tax deduction this is why many families falling into an t live in high-income tax states generally families will have a higher AMT tax between 150 and $600,000 ranges and will owe the additional tax the reason you climb out of AMT is because the higher your income the higher your tax rate goes that is where the blue line went back above the red one there are ways you can deal with AMT but we recommend careful planning with your financial adviser or tax accountant a few examples of things to look into are 125 plans contributing to SEP IRAs for the self-employed or 401ks for employees since state taxes and property taxes are preference items try paying those and years you are not subject to AMT if possible this was a filtered explanation of AMT remember the government implemented the system to close a lot of loopholes so it's.