Large Family Could be a Tax Red Flag

Most CPAs and accounting professionals know that the alternative minimum tax (AMT) traditionally applies to high-income taxpayers who place monies in tax shelters and other vehicles to avoid an increasingly higher tax liability.

However, when framed differently, it also applies to families who have a large number of children. Why? The AMT is initiated when a taxpayer pays in what the government considers too little tax. This can occur based on various situation, including having many itemized deductions.

In the case of a large family with many children, claiming the proper number of "personal exemption credits" - one for each dependent - also can cause the AMT to kick in.

So what's the problem? If the family truly isn't in a high-income bracket, then they are paying too much Federal tax - a real problem for low- to middle-income earners.

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