I just got a rude wake up call regarding AMT

[henryclay]

I had a client ask a question today that caused me to look up the 2012 AMT provisions.
Currently AMT exemptions are:

AMT Exemption Amounts for 2011
Legislated as part of the 2010 Tax Relief Act:
•$48,450 for single and head of household filers,
•$74,450 for married people filing jointly and for qualifying widows or widowers, and
•$37,225 for married people filing separately.

AMT Exemption Amounts for 2012
The alternative minimum tax exemption amounts for 2012 are scheduled to revert to the following levels:
•$33,750 for single and head of household filers,
•$45,000 for married people filing jointly and for qualifying widows or widowers, and
•$22,500 for married people filing separately.

Source: Code Section 55(d)(1). Lower exemption levels mean that more taxpayers will be subject to the alternative minimum tax calculations.

The client, married and just turning 65, who has an expected $73,859 in wages during 2012, can expect $389 in AMT.

[rangerj]

Tax the rich!!!!

[jemima]

[TheOtherMe]

Congress will change this in December, after the election.

[henryclay]

Jun 1, 2012 19:22:12 GMT -5 TheOtherMe said:

Congress will change this in December, after the election.

The entire 435 members of the House of Representatives, and 31 Senators out of the 100 total, are all up for election this fall.

The AMT was instituted many years ago for the purpose of plugging the tax dollar leaks through creative tax planning that was a prevalent tool being used among the rich and famous to avoid taxes. It bites as high as 28% on things that the tax code skips with loopholes.

For years now, it has been tinkered with on an annual basis to keep inflation from dragging the common working person from being grabbed in its clutches, but it has never been fixed so as to eliminate the threat.

This year it reverts to Pre-Bush figures that are so brutal that a dishwasher, who is married to a maid, and both of whom are employed in a fancy five star resort hotel, , , (and may have the "luxury" of a $75,000 income that has to be split between them), , will have the AMT added to their income tax. That's not taxing the rich. That's taxing the dishwashers and maids who clean up after the rich..

Does anybody think waiting until after the election to get the congress to start work on it is wise? Shouldn't the effort come from the people who will be effected by it, and shouldn't that effort be meaningful enough to get the changes made BEFORE the elections?

Have you looked at your own situation yet? Or talked to your friends and neighbors? Or Contacted your Representative in the House, or in the Senate yet? Have you written your :letter to the editor? Have you made any calls to radio or TV talk shows?

Or are we all waiting for somebody else to do it?

All members of the House are listed here. So are some other things about them, including whether they are currently planning to seek reelection and how to contact them,

en.wikipedia.org/wiki/United_States_House_of_Representatives_elections,_2012

Here is similar information for our Senators:

en.wikipedia.org/wiki/United_States_Senate_elections,_2012

[mwcpa]

Ever since the "Bush era" tax rate cuts became fully effective Congress has NOT addressed the AMT issue, this is not a new phenomenon. For years, tax planning has been made very difficult by Congresses continued lack of action in this area. I recall a few years back (during the last administration) Congress passing an AMT patch just before Christmas, after many had "planned" for a bigger bite.... that year I actually wrote to my Congressperson and both Senators to no avail.

We all know the problem, Congress knows the problem, but it's complex and it cannot be explained in headline news fashion (which is the length of most of our attention spans) to the masses.

Expect Congress to just pontificate about the issue on the re-election trail and do nothing, expect the talking heads to continue to complain on Sunday mornings about the problem and blame the other side..... we can once again (in my opinion) look for a lame duck Congressional session for an AMT patch while the whole tax system problem gets kicked to the next Congress... hopefully Congress will come out more even keeled and not so extremist after the election and then we can get some action......

[TheOtherMe]

Jun 4, 2012 6:31:25 GMT -5 mwcpa said:

Expect Congress to just pontificate about the issue on the re-election trail and do nothing, expect the talking heads to continue to complain on Sunday mornings about the problem and blame the other side..... we can once again (in my opinion) look for a lame duck Congressional session for an AMT patch while the whole tax system problem gets kicked to the next Congress... hopefully Congress will come out more even keeled and not so extremist after the election and then we can get some action......

This is why I said it will get a temporary patch in December.

[wvugurl26]

I would hope there is a patch! I guess it is a first world problem but it blows my mind that I am getting close to being snagged my AMT. Without the patch, I'd get snagged for sure in 2013 when I get my GS12 promotion. $74.8k is not what I consider rich!

[rangerj]

The AMT was introduced in the late 1960s and was intended to impose a "minimum tax" on wealthy earners who sheltered their income with tax preference items like losses from pass through entities, tax credits, accelerated deductions and deferred income, etc. Keep in mind that in the late 1960s you were doing well if you made $10,000 as a average Joe. As listed above the AMT exemption rates are ridiculous and should be adjusted for inflation, if the AMT should exist at all. Keep in mind also that most of the "loopholes" that the AMT was intended to address were corrected by the 1986 tax reform. For example depreciation abuses were addressed in the advent of section 168 ACRS/MACRS and the phase out of section 167 (depreciation), as well as things like allowing passive losses to be deducted against passive income (this is a big loophole closer), and investment losses being allowed to be deducted against investment income (also a big loophole closer). The day after the 1986 TRA passed the Congress started changing the tax code to offset these changes. Listen to these folks talk about middle income being $30,000 to $50,000. Does that mean anyone making more than that is rich? In the County I live in $30,000 for a family of 4 is considered in poverty. Is $250,000 rich when a East coast or West Coast big city police officer and a experienced teacher could make $125,000 each. If they are married and own a home I would bet that their real estate taxes , state income taxes, and city income taxes would put then in an AMT situation. The tax code needs to be reformed, but given the current Congress, both sides, that is a frightening thought.

[henryclay]

Yessir, ranger,

And that's why I think the pressure for congress to act BEFORE the election is better than waiting, and, , , , (gulp), , hoping, , , , the next congress will address it. In my case I am telling my electeds that how they react before the election will play a part in how I respond on election day.

And I think single people and anybody filing a seperate return ought to look at the AMT thresholds at least as closely as marrieds do.

[wvugurl26]

Jun 4, 2012 11:21:30 GMT -5 henryclay said:

Yessir, ranger,

And that's why I think the pressure for congress to act BEFORE the election is better than waiting, and, , , , (gulp), , hoping, , , , the next congress will address it. In my case I am telling my electeds that how they react before the election will play a part in how I respond on election day.

And I think single people and anybody filing a seperate return ought to look at the AMT thresholds at least as closely as marrieds do.

I should be good this year but I may get snared next year. I had no idea I was so close. I don't consider $62k/yr living the high life. And as a single who rents, there aren't many tax loopholes I'm using.

[Opti]

This year it reverts to Pre-Bush figures that are so brutal that a dishwasher, who is married to a maid, and both of whom are employed in a fancy five star resort hotel, , , (and may have the "luxury" of a $75,000 income that has to be split between them), , will have the AMT added to their income tax. That's not taxing the rich. That's taxing the dishwashers and maids who clean up after the rich..

Personally I'd like proof of this. Dishwashers and a maid that hasn't been promoted into management make wages in the lowest of the low no matter where they work. Perhaps a maid in a 5 star hotel comes home with some serious tips, but in general $8/hr for 40hrs.
plus maybe $9-10/hr. for 40hrs is much closer to 35-$40K unless the tip income is huge.

[SVT]

Jun 4, 2012 11:32:56 GMT -5 wvugurl26 said:

Jun 4, 2012 11:21:30 GMT -5 henryclay said:

Yessir, ranger,

And that's why I think the pressure for congress to act BEFORE the election is better than waiting, and, , , , (gulp), , hoping, , , , the next congress will address it. In my case I am telling my electeds that how they react before the election will play a part in how I respond on election day.

And I think single people and anybody filing a seperate return ought to look at the AMT thresholds at least as closely as marrieds do.

I should be good this year but I may get snared next year. I had no idea I was so close. I don't consider $62k/yr living the high life. And as a single who rents, there aren't many tax loopholes I'm using.

I highly doubt you're anywhere close to paying AMT.

[wvugurl26]

Jun 4, 2012 12:59:55 GMT -5 SVT said:

Jun 4, 2012 11:32:56 GMT -5 wvugurl26 said:

I should be good this year but I may get snared next year. I had no idea I was so close. I don't consider $62k/yr living the high life. And as a single who rents, there aren't many tax loopholes I'm using.

I highly doubt you're anywhere close to paying AMT.

If the guy with wages of $73k will owe, I will owe when I get promoted to 12 in 2013.

[SVT]

Jun 4, 2012 13:05:34 GMT -5 wvugurl26 said:

Jun 4, 2012 12:59:55 GMT -5 SVT said:

I highly doubt you're anywhere close to paying AMT.

If the guy with wages of $73k will owe, I will owe when I get promoted to 12 in 2013.

I don't think that's true. AMT is complicated and you usually need to be claiming a lot of deductions (or trying to I should say, since AMT cancels out a lot of deductions and exemptions and such). Income alone won't cause you to pay AMT.

[wvugurl26]

Maybe its not and really there's no planning 2013 when 2012 rules aren't final. Still not sure it is as far off as I once thought.

[TheOtherMe]

In the past several years, lots of tax law changes were made in November/December which made it very difficult to advise clients when it came to tax planning. There is only so much that can be done by that time of the year.

[mwcpa]

I do not expect this Congress, filled with extremists on both sides, to ever agree on a tax change until after the election, I hope, they all (the ones up for re-election) lose their jobs.... people get fired from their job for much less, yet we keep re-hiring these partisan hacks over and over who clearly, in my opinion, do not have the interests of the people as a priority.....

[Wizard of Id]

They keep getting re-elected because it's always "your" politician that needs to go not "mine".

[mwcpa]

So true wizard

[TheOtherMe]

Jun 5, 2012 9:14:53 GMT -5 mwcpa said:

I do not expect this Congress, filled with extremists on both sides, to ever agree on a tax change until after the election, I hope, they all (the ones up for re-election) lose their jobs.... people get fired from their job for much less, yet we keep re-hiring these partisan hacks over and over who clearly, in my opinion, do not have the interests of the people as a priority.....

This is why it will happen in the lame duck session.

[Deleted]

I got slapped with AMT this year.  I guess I didn't realize that all my deductions were going away + had a windfall bonus this year.

I have to see what kind of penalty I get assessed, since I didn't anticipate AMT, I thought I'd have a refund when I filed an extension . . . now I'm doing the taxes electronically & see that I owe a little bit.  Sigh.

[mwcpa]

rock....

more than likely the "penalty" will be interest + 0.25% per month of the balance due... if you file and remit by 9-16 that will be considered 5 months (since the 15th is a Sunday)...9-17 will be 6 months.... so, get it in by 9-16.... one day which equals a month in the tax law for penalty calculations is possibly costly....

[Deleted]

I've been paying the AMT for at least the last 15 years, even during the years when I was a single mother. It's been getting worse, though. Last year I input my property taxes into the tax software and there was zero change. Deductions went up; so did the AMT.

[mwcpa]

"Last year I input my property taxes into the tax software and there was zero change. Deductions went up; so did the AMT"

State and local income tax and real estate taxes are one of those 'special' tax deductions that are not allowed under AMT.....

[taxref]

The 2 AMT preference items which tend to affect average taxpayers (ie: those with only W-2 income and itemized deductions) are state and local taxes, and 2% miscellaneous itemized deductions.  

Consequently, those who live in high tax states (such as CA, NY, NJ) and/or have high employee business expenses are at a much higher risk for AMT.  When trying to determine if one will be affected by AMT, its important to keep in mind that the AMT is primarily based on deductions rather than income.   

[mwcpa]

"When trying to determine if one will be affected by AMT, its important to keep in mind that the AMT is primarily based on deductions rather than income. "

But with the AMT rate higher than the averge persons tax rate income does become a factor....

I have a client, elderly, living off of treasury interest and non AMT muni bonds, social security and a small pension... they take the "standard" deduciton and have been hit by AMT for years....