Posted on 02/24/2005 6:46:33 PM PST by wagglebee
WASHINGTON -- Bad news. You've spent days trudging through tax forms only to run into a kink that eliminates most of your tax benefits and sticks you with a much bigger bill.
That kink is called the alternative minimum tax or AMT, and it's creeping up on a growing number of people with circumstances that trigger a trap once aimed solely at the richest tax dodgers. The system can strip taxpayers of benefits they would otherwise have gotten for children, out-of-pocket business expenses and state, local and property taxes.
Could you be at risk?
Those who fall "into this category, more and more, are people with large itemized deductions or both state and local income taxes and both real and personal property taxes," said George Jandl, a partner in charge of private client advisory services at KPMG.
"Many are shocked by it."
About 2.4 million taxpayers paid $8.7 billion in alternative minimum taxes in 2003.
John Battaglia, a director in private client advisers services at Deloitte Tax LLP, said taxpayers socked with the alternative minimum tax typically fall into two categories. Some agonize every year, while others find one year that a special circumstance has unexpectedly knocked them into its pitfalls.
The chronic sufferers typically earn $100,000 to $500,000 and fall outside temporary restraints that keep the AMT from hurting too many middle-class families, Battaglia said.
Families who don't consider themselves especially wealthy can get caught in its claws.
"I would call it middle- or upper-class taxpayers, generally anybody earning more than 75,000, 80,000 (dollars) a year might be subject to the alternative minimum tax," Jandl said.
Those who think they might fall into the group should keep an eye out for a couple of warning signs. Some work or live in a high-tax state. Some have significant income from investments, like capital gains and dividends, and relatively less income from ordinary wages. Some have significant work expenses that don't get reimbursed by their employers.
Those alarmed to find out they might pop into the AMT can sometimes plan ahead to avoid the extra tax, but not always. Big deductions for numerous children, significant medical expenses or large unreimbursed work expenses could pose a problem. Those who exercise incentive stock options run a very high risk of paying the AMT.
And pay attention, lottery and stock market winners! A significant increase in income, including capital gains, can trigger the dreaded AMT and sometimes even a penalty for not paying enough taxes to Uncle Sam throughout the year.
Those looking forward to taking advantage of a new deduction for state sales taxes will find that it's not permitted under the AMT system.
"So the government giveth and the government taketh away," Jandl said.
Taxpayers might find they have limited flexibility to work their way out of the AMT. Planning well in advance can help. Given the AMT's complexity, calculating its impact or avoiding its bite often require the help of a tax professional.
Taxpayers can, with some help from a professional or a financial calculator, figure out the tipping point where their mix of income and deductions shifts from the regular tax to the alternative tax. The exercise might enable some taxpayers to shift their income or deductible expenses and avoid the higher bill.
Tax ping.
Why not make the alternative minimum tax the flat tax? That way if you want to contiunue paying under the old system you can, but if you want to pay using the new system, it would be the flat tax.
I like the consumption tax more. With it "everyone pays". All underground activities are taxed. Everyone pays. Period.
(Denny Crane: "There are two places to find the truth. First God and then Fox News.")
Amen!
But this tax is most likely to hit liberal Democrats: two-income professional couples living in New York and California.
These are the heart of the current supporters and contributors to the Democratic Party.
They are in favor of high taxes anyway, so why not sock it to them?
This is why Bush and Congress are in no hurry to modify or repeal the AMT.
While we're at it why not end deductibility of state income taxes from federal income taxes?
All the more reason to begin reducing the size of the Federal Government and eventually abolish the federal income tax altogether.
Of course we can't even think about doing that until Republicans take over both The Congress and The Presidency.
Anyone who believes this, I have a bridge for them. This is what they SAID when they put it through. In practice, the rich have ways of getting around the AMT. The middle class gets screwed--as usual.
Whether there's any other tax reform or not, the AMT must be abolished.
Not only does everyone pay but everyone experiences a new sensation of 'privacy' from the government and those having access to our personal tax returns.
Having privacy brings an abundance of freedom and with freedom comes joy.
I think you're right about the rich not paying taxes.
Let's see Teresa 'Prozac' Heinz-Kerry earns millions per year in tax-free muni bonds and pays insignificant tax from other income, something like $12,000 per year.
John 'Kiss-Me' Edwards stuffs his income into a cluster of sub-chapter S corporations which contain loopholes within loopholes wrapped in language no one understands.
George 'Monasticist' Soros keeps his income out-of-sight in an offshore hedge fund that the IRS cannot penetrate.
etc.
Surprise, surprise, surprise. This is EXACTLY what was warned when the tax happy Dems forecd the AMT through.
Of course, anyone (mostly conservatives) that pointed this out back then was "giving money to the rich", blah, blah, blah.
It's like when the GOP cut captial gains tax rates in 1996 to the whines of "tax cuts for the rich (squawk), tax cuts for the rich (squawk)" by Democrats only to have the Dems take credit for the influx of revenue to the treasury that created the first "surplus" (accounting gimmick) since 1968. And what's really funny is the Democrats IDIOTS then "projected" that one year out by 10 and ran around with the silly claim in 2001-02 that G. W. Bush, "took a record surplus and created a record deficit".
God, I truly hate liberal Democrats.
The first time I have to pay the AMT will be the last time I file a Federal income tax return.
This may not be true. Large deductions for charitable contributions can trigger the AMT and we all know that the blue staters don't give their own money to charities. The want to give your money to their liberal causes.
Do away with cash. That would shut down the underground economy.
Are you serious?
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