Working folks breathed a sigh of relief in January when Congress addressed the "fiscal cliff" crisis by passing the American Taxpayer Relief Act of 2012, which among other things removed the specter of the dreaded alternative minimum tax, or AMT, for tens of millions of middle-class taxpayers.
The AMT, aka the "millionaire's tax," was enacted back in the President Richard Nixon era to close tax loopholes for the wealthy. Because it was not tied to inflation, however, this separate -- and by design more costly -- tax system grew to snare millions of taxpayers for whom it was not intended, forcing Congress to pass a series of "patches."
The American Taxpayer Relief Act finally made the patch permanent and tied the AMT to inflation.
While few taxpayers actually understood why they were being transported into this parallel tax universe year after year, CPA Edward Mendlowitz of WithumSmith+Brown in New Brunswick, N.J., recalls one taxpayer who seemed strangely drawn to the idea. The taxpayer's comment highlighted the fact that some don't really understand the spirit of the AMT.
"A client with an alternative lifestyle wanted to know how to maximize the alternative minimum tax," he says.