Skip to comments.AMT will hit 15 million more in 2006
Posted on 12/14/2005 10:35:25 AM PST by RedStateRocker
"WASHINGTON - Congress won't address the growing reach of the alternative minimum tax this year, leaving more than 15 million individuals and families subject to its bite for the first time next year. Senate Majority Leader Bill Frist (R., Tenn.) told reporters yesterday that legislation addressing the alternative minimum tax would not be completed this year. Lawmakers can act next year to make retroactive changes that ensure taxpayers do not pay more in 2006, but millions will start the year in its grasp."
(Excerpt) Read more at philly.com ...
What Fn good are Rep senators?
I can see nothing but cowtowing to Dems demands to investigate that or investigate this.
How bout a constitutional ammendment to disband the Senate.
After all we do have the house of REPRESENTATIVES and at least from what I can tell they REPRESENT US VOters!
Two years ago, we were $8000 away from being affected by the AMT. Last year, we were only $1000 away. This year, we're going to get hit with it hard.
The AMT is doing exactly what it was intended to do when it was enacted. The dems knew they could not foist such an oppressive tax regime on the American people. Thus, they set a time bomb. At the time, it was sold as merely affecting the most affluent of Americans. But, the dems knew damn well that with time the AMT would eventually touch everyone!!
ARE YOU KIDDING????????????
We are represented by russ feingold. He has been for no one but himself ever since he got in there. Besides being a rather large sissy and virulently disrespectful to our military and their Commander In Chief.
I really don't think the house of self-interested representative is the answer.
If I weren't subject to extortionate taxes, I'd have my house paid off and a new car in my driveway.
I am so upset with these so called Republicans. Here's another issue: I have a friend who's a senior citizen who can't cash in any of her CDs without being subject to an 85% tax on her social security. This tax was enacted in '93 or '94 by a Dem controlled house and senate and Clinton. By one vote in the house and Gore had to break the tie in the senate.
Gingrich and Dole house and senate voted to repeal this tax in '95, but it was vetoed by Clinton. So we've had a Republican controlled house and senate and Republican Prez since '02; instead of repealing this stupid tax, they create this behemoth prescription drug benefit.
Think of it. The seniors who can afford it can pay for their own drugs; the drugs would probably wind up being cheaper, but instead they're paying an unfair tax.
So what is the income threshold now, assuming no changes are put into place?
Just being married will just about do it.
What is the threshold for this tax?
no one likes to pay taxes, but someone has to.
the original intent of the AMT is still sound. the only problem with it is that the income thresholds and deductions scale has not been adjusted over time, hasn't been indexed for inflation, increases in property tax and mortgage interest levels, etc. they don't need to repeal the AMT, they need to adjust the thresholds.
Couldn't agree more. The AMT is the most insidious tax and all should demand it be repealed!
Not only is the AMT bad but failure to be accurate in complying brings about serious monetary and criminal penalties. That is why it needs to be repealed.
And yet, you expect our votes? Jam it, you parasitic thieves.
this is a good approach. A lot of Democrats want to eliminate the ATM. Fine, do so when congress passes what the Republicans want in tax relief.
The Alternative Minimum Tax
Last year, a Boston-area high-tech company saw its stock plunge from a record high of $58.75 on January 20, to a low of $1.13 exactly 11 months later in November. One employee, who chose to remain anonymous for this article, exercised 1,000 options at $10 a share when the stock reached its peak. With April 16 nipping at her heels, she still owns the shares. Imagine her terror upon learning that the spread of $48.75 multiplied by the 1,000 shares - a total of $48,750 - is subject to a parallel tax system called the alternative minimum tax, or AMT, at a rate of up to 28 percent. Even though her stock currently is worth just $1,130, the resulting tax owed on the spread is $13,650.
Less and less alternative
Created in 1969, AMT was designed to prevent the very wealthy from dodging taxes through shelters and deductions. Taxpayers are required to calculate both their regular tax and what they would owe under the alternative system - then pay Uncle Sam the higher of the two figures. In effect, taxpayers are simply adding back some tax deductions and income exclusions to regular taxable income to arrive at the alternative minimum taxable income. However, because the AMT was never indexed to inflation, an increasing number of regular middle- and upper-middle-income folks find themselves owing the convoluted tax.
"When the Nixon Treasury put this in place, the argument was that everybody should pay something. There were a few hundred people making a million dollars' gross income that due to loopholes paid no taxes," said Professor Bill Raabe, who has written several books on taxes and specializes in taxation at Samford University in Birmingham, Ala. "If you think of it that way, it should exist. But it should be a tax for a very small number of people to pay." But now, he said, "the tax is doing something that it wasn't designed to do....Something's wrong."
The AMT is assessed at 26 to 28 percent of income after a certain exemption and allowing for very few deductions, which is how it's supposed to nab the tax-dodging millionaires. Since personal exemptions are not allowed, don't be blind-sided by the higher tax yourself - even if, for example, you and your spouse support six children on a combined salary of $75,000. Though hardly rich, by taking eight personal and dependent deductions you would trigger the alternative tax.
"People who were never intended to be subject to the AMT are being caught by it," said David Maloney, a professor of commerce at the University of Virginia. "It's not just the very, very wealthy."
Although most folks have never heard of the alternative minimum tax, by the time they do, it will be too late. By 2010, nearly 30 percent of all taxpayers making between $75,000 and $100,000 a year (about 1.7 million people) will be subject to the AMT if it is not changed, according to a Treasury Department study released last year. That's up from just 14,000 filers in 1998.
Sam Serio, a regional media relations specialist for the IRS in the District of Columbia, Maryland, and Northern Virginia, says the key problem boils down to one thing. "Basically it's the indexing: whether Congress chooses to index the AMT" to inflation, he said. "Otherwise, more and more people will be affected by it and more people have to do their taxes twice" in order to figure out what they owe.
"I sure wish the computations of the AMT were simpler," he added.
Tax comparison: AMT versus regular taxes
AMT computation Regular tax computation
Adjusted gross income
Plus: AMT adjustments and preferences
Less: AMT itemized deductions
Adjusted gross income
Less: personal and dependency exemptions
Less: greater of total itemized deductions, or standard deduction
Less: AMT exemption
Multiplied by: regular tax rate
Multiplied by: AMT tax rate
Regular tax liability before credits
Plus: actual AMT
Less: nonrefundable credits
Less: refundable credits
Plus: other taxes
Actual AMT Total tax
To calculate whether you owe alternative minimum tax, use IRS Form 6251. To get a quick sense of your AMT liability, compare the results of the first and second columns above, and pay whichever amount is higher.
Source: Internal Revenue Service.
What triggers the AMT?
Unfortunately, there's no telling for sure what will trigger the AMT for any given taxpayer. A combination of any number of factors might set it off. If you have any doubt, it's advisable to fill out IRS Form 6251 along with your regular taxes, so you can see which of the two is higher (and therefore the one you owe). Here is a list of items, or preferences, that might cause liability under the alternative minimum tax; it is not meant to be a complete list.
* Exemptions. The more exemptions you claim, the more likely it is you'll have AMT liability.
* Standard deduction. Although the AMT usually hits higher-income folks, this widely used deduction can contribute to AMT liability.
* State and local taxes. If your state or local taxes are high, you're more likely to be subject to the AMT.
* Medical expenses. If you claim an itemized deduction for medical expenses, part or all of it will be disallowed when you calculate the AMT.
* Miscellaneous itemized deductions. If you claim a large number of certain itemized deductions (such as unreimbursed employee expenses, tax preparation fees, etc.), you could end up paying the AMT.
* Various credits. The more credits you claim, the more likely it is you'll get hit with the alternative tax.
* Incentive stock options and long-term capital gains. As we saw above, exercising a large ISO is practically guaranteed to stick you with the AMT. A large capital gain reduces or eliminates the AMT exemption amount, which is meant to protect low-income earners from the alternative tax. (See the story titled, "Tax Implications of Stock Options" in the series Understanding Your Options.)
* Interest on second mortgages. If you borrowed against your home for some purpose other than expenses related to the home, the interest deduction won't be allowed under AMT.
* Tax-exempt interest. Interest otherwise exempt from the regular income tax might not be for the AMT.
* Tax shelters. The AMT provides reduced tax benefits for investments in certain types of partnership or limited liability company arrangements involving activities such as drilling for gas or oil (source: Fairmark Press).
While there may not be any dependency or personal exemptions under the AMT, you don't have to pay AMT if you meet any of the following exemptions.
* $45,000 for married couples filing jointly with phase-out beginning when AMT income is over $150,000.
* $33,750 for single people, or heads of households, with phase-out beginning when AMT income is over $112,500.
* $22,500 for married couples filing separately with phase-out beginning when AMT income is over $75,000.
A tax cut that might increase your taxes
Don't expect things to get less complicated anytime soon. As President Bush's proposed tax cut is making its rounds on Capitol Hill this month, the complex 30-year-old AMT is coming under increasingly heavy fire by taxpayers and lawmakers alike. But due to the GOP's determination to push through their cut, combined with the estimated $200-$300 billion over 10 years it would take to fix the outdated AMT, it is unlikely that it will soon undergo the reform experts agree it so badly needs.
Although the interests of the wealthy are not exactly anathema to Republicans (nor to Democrats, for that matter), the GOP has been paying little attention to this parallel tax system as it tries to put its massive tax cut on a fast track through Congress. "The changes that are being discussed relate to the regular tax," said Maloney. "If Congress goes forward and enacts Bush's plan, the regular taxes will go down but the AMT will not. So as a result, more people than ever before will be subject to the AMT. It would take away the advantage of the cut people would receive. That's an ironic twist."
In principle, most experts agree there's nothing essentially wrong with the AMT, it just badly needs to be updated. "There's a lot of confusion about AMT," said Serio in his Baltimore, Md., IRS office. "Some people think it's an add-on tax and it's certainly not. Some think they'll be paying rates of 31 percent, 36 percent or the top rate of 39.6 percent. But it's not putting you in some huge tax bracket - it's Congress's way of saying you're at least going to pay between 26 and 28 percent, regardless of what your preferences are."
When looked at that way, there is a case to be made for keeping the AMT. To echo a sentiment about another federal program, experts subscribe to a "mend it, don't end it" philosophy: keep the AMT, peg it to inflation. In the meantime, if you suspect you might be subject to the alternative minimum tax, you're going to have to calculate both sets of taxes.
About that lamentable fact of life, Serio quipped, "I can say thank God for computer software."
- Brian Braiker, Salary.com contributor
But you're going to keep voting for them, aren't you? So why they hell should they care what you think?
its a combination of things - your income, what your deductions are. its original intent was to make sure that high income persons who managed to structure themselves to have very high writeoffs, could not escape paying some floor of federal income taxes. if some dude wants to buy a 5 million dollar house with a 4 million dollar mortgage, I don't want to subsidize that.
Quote: "the original intent of the AMT is still sound. the only problem with it is that the income thresholds and deductions scale has not been adjusted over time, hasn't been indexed for inflation, increases in property tax and mortgage interest levels, etc. they don't need to repeal the AMT, they need to adjust the thresholds."
Whatever the stated intent of the AMT was, the REALITY of the AMT is now smacking us in the face. Of course the income thresholds and deduction scale has NOT been adjusted. It was done purposefully so that the AMT would no longer be "alternative" but the norm, the way all Americans are taxed. In short, by not making adjustments, this allows the dems to raise taxes without ever having to actually vote to do it. A dirty dem trick, but one well designed back in the days when the dems ruled congress.
your clip in that post is a good one - and outlines the problem - just pass a simple bill raising the thresholds on the AMT so allow middle and upper middle class people to "escape", don't try to do too much, tossing the whole AMT is a bad idea.
I agree with you. let's get a simple bill that adjusts the income and deduction thresholds.
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