A nasty surprise awaits the middle class come tax day

Seattle Post-Intelligencer ^ | January 31, 2004

[sarcasm]

Beware: The alternative minimum tax could soon snag you.

The minimum tax, enacted to make sure that even the ultra-rich pay some income taxes, may hit 44 million households, including families making less than $50,000 a year simply because they have lots of children to claim as exemptions or take other tax breaks.

The non-partisan, private Tax Policy Center estimates the tax will:

• Add an average of $3,751 annually to a tax bill, with 52 percent of affected households making $100,000 or less a year.

• Let many ultra-wealthy people off the hook again: Only 24.3 percent of people making over $1 million will pay the tax by 2010.

Congress enacted the tax in 1969 amid reports that 155 ultra-rich Americans avoided paying a penny in income tax. The alternative tax has been on the books since then, never indexed to inflation.

The tax breaks President Bush and Congress enacted since 2001 expanding child tax credits and "marriage penalty" relief make it more likely taxpayers will owe the alternative minimum tax.

Bush called for permanent extension of these tax breaks in his State of the Union address but not reform of the alternative minimum tax, which denies families most of the Bush write-offs. The 2003 tax cut contains a temporary provision that will help many families avoid the alternative minimum tax through 2004. But repealing the tax entirely would cost the Treasury $600 billion in the next 10 years.

And there's insult to the injury, the IRS says:

• Taxpayers who might owe the alternate minimum will spend 12 hours more preparing their 2003 taxes. They will have to calculate taxes under two formulas requiring eight pages of instructions, a 12-line worksheet and a 65-line form.

• And when they're done, they must pay the higher amount. Many won't owe the alternate minimum tax -- but they'll still have lost a day figuring that out.

[biggerten]

I make under $100K per year - well under.

I work for a small company, and was granted stock options a few years ago.

The company has since went public, and the stock soared.

I recently exercised my options, as they were about to expire.

I now have to pay tax on the difference between what I bought the stock for, and what it is now worth - EVEN THOUGH I HAVEN"T SOLD ANYTHING, AND HAVE NOT REALIZED A PROFIT!

I have to pay taxes on money I haven't even seen!

What to people under 100K have to keep track of? Lot's of things that you and I aren't even aware of, until Uncle Sam's IRS minions bite you on the A S S!

[Tax-chick]

FLAT TAX, FLAT TAX, FLAT TAX.

The whole tax code sucks.

You said it!

[AMDG&BVMH]

Beg to differ. The 1040 is more complicated than the 1120, for an S-corp. The lines from the 1120 bubble into the 1040. Then if you run a Schedule C for a proprietorship, you have all the issues patton raised. And more, like withholding, and generating W2s if you pay wages to a family memnber for bona-fide work. Then you don't know if AMT or the Roth IRA limits are going to kick in because of the depreciation and etc. from the 1120, so you can't contribute to a ROTH IRA or have to back it out later, because you are paying tax on profits that have been invested in the business that generated the 1120. I.E. the cash is productively in the business, not sitting around to just pay taxes with. So you are not super rich as people, but the tax code treats you that way.

In brief, if you work productively and are not just receiving W2s and 1099s for your income, the 1040 is a nightmare!

[TalBlack]

"Here's taxes most don't even realize they are paying:"

Exactly! "Don't even realize"! A group of commercial bakers tried to figure out how much of the price of their respectives Co's loaves went to the Gov't AND THEY COULDN'T DO IT! The algorithym or whatever was so complex that they couldn't PRECISLEY figure it out!

[AMDG&BVMH]

That is the point! I have a relative who makes very moderate income, and was SHOCKED what the tax code entailed when she had to do the estate for her parents' small farm! I.E. you don't know until it hits YOU.

[waterstraat]

When the alt minimum tax was created, $50,000 to $100,000 was a lot of money.

I firmly believe that taxes should be balanced with spending nearly every year, or very close to it with few exceptions if you are to have fiscal responsiblity in government.

You can call increased taxes by any name, alt minimum tax or whatever , but the fact is, that we need to raise taxes on those still working by over $500 billion right away in order to balance the budget.

federal spending is not going down, it is going up. Those who still have jobs, those who have not lost jobs to asia, will be expected to pay much higher taxes, to make up for all those who no longer pay taxes because their job or factory moved to asia.

free trade is not free. If you want to enjoy all the direct benefits of free trade(e.g higher profits on NIke shoes and other products now made by cheap labor, a much stronger India and communist china, higher bonuses for CEO's who move factories to asia, etc), then you must be expected to pay those inevitable indirect costs of free .

You should be glad to pay more taxes in the future(you should expect your taxes to rise to balance the budget) - it means that more american citizen jobs are being done by chinese communists.

[Zeppo]

At least if you exercise your options, you have the opportunity to sell some shares to pay the tax. A lot of folks (like me!) have options for restricted stock in a company that has not gone public - if I were to exercise the options, I would owe millions of dollars of tax on the imaginary profits that I made, with no possible way to pay it. But if I don't exercise the shares, I have the potential to lose the options. The AMT is a curse...

[stylin_geek]

I used to dread tax season, because not only working a full time job, but I also ran a small (very small) custom welding and design business. Keeping track of receipts and taking deductions, mileage, etc. Not to mention having to pay FICA. It was complicated enough so that I spent the money to have an accountant do my taxes.

[Glenn]

Anyone who spends 12 hours preparing their household income taxes doesn't have a clue what they're doing in the first place.

You must file the short form.

[Puddleglum]

Alls I know is if the richest country in the world can't make due with the incredible amount of taxes it collects already then there are some crooks, cronies and idiots in Washington. Not too insightful, I know, but someday it may help remind politicans that even the US can't pay for solving all the world's problems, be they poverty across the border or lunatics across the globe.

[Vaduz]

Short forms has no loop holes like the long forms.

[MarkL]

I'd like to see the ultra-rich and everyone pay the 12.4% FICA.

No exceptions.

Then I'd call it even.

I take it that you mean having to pay on every dollar, rather than just a portion of it. So, if that were the case, would you also do away with the cap on payments from FICA and say that no "means testing" would be necessary? If not, then what you're doing is buying into the leftists corrupt "payroll tax" versus "social security" debate.

Ever notice that the leftists talk about social security when discussing benefits, but when funding it, they always talk about the "payroll tax." It used to be that everyone discussed social security as a safety net that was intended as a supplement, that was a "pay as you go" insurance plan. Not any more. Now, it's an entitlement, it's what "you're due," it's a government run retirement plan.

Mark

[pabianice]

TurboTax Premium. $ 69.95 before rebate. Three hours. Be there.

[blackdog]

Actually the more people the AMT snares the better as far as your average politician is concerned. Why do you think these AMT scare press pieces crop up all the time?

The beauty of it is that the politicians can "save" the taxpayer each year with a "temporary" exclusion or modification to the rule. If you don't vote for so and so, you're dead meat. Why do you think they automatically sunset tax decreases but when it's pocket raping tax increases, it's sunny forever for Washington.

[MarkL]

No kidding...

I gave up on trying to do my own taxes about 12 years ago, and although I did try to save the $200 or so that I spend having them done 2 or 3 times, it just wasn't worth my time or effort.

The first time I went to H&R Block, I was there for quite some time while the preparer entered the value of the computer equipment I use in my business. Every year, we go through the same thing, although since this is all done on her computer, it takes care of the depreciation. On the average, I'm sitting there with her for only about an hour... But of course, I spend between 4 and 5 hours of my own time organizing the information so when she asks for it, I've got it all on a piece of paper for her.

Mark

[Paul C. Jesup]

I suggest the alternative minimum tax is done away with at the same time people getting MORE money in a refund than they ever paid in taxes in the first place due to tax credits is done away with also.

Actually, I suggest we force those who work for the IRS do their own taxes long hand without a computer.

If that happened, the IRS would implode in less than a week.

[Glenn]

Short forms has no loop holes like the long forms.

Are you calling me a cheat?

[ovrtaxt]

But repealing the tax entirely would cost the Treasury $600 billion in the next 10 years.

"Cost" the Treasury? Like it's their money they are losing? This kind of rhetoric frosts me to no end.

[leadpenny]

I appreciate your remarks. . .

. . . then what you're doing is buying into the leftists corrupt "payroll tax" versus "social security" debate.

. . . but I'm not buying into anything. I don't have a choice in the matter. I have to pay 12.4 (except in the 70's when I bumped the cap) and so should everyone else. When I talk about 12.4% in FICA I'm talking about contributions - I'm not talking about benefits. That is on the other side of the ledger as far as I'm concerned. We should deal with benefits on their own. It may mean means-testing. I don't know. I do know that on the contributions side it's not fair the way it is now.