Let us discuss the Alternative Minimum Tax.

[kvrdave]

What exactly is it? Why did I get hit with it? Who will save my soul?

Really....what's the deal?

[ChiTownAbs, Inc]

From wikipedia

In essence, the AMT sets a minimum tax rate of about 27 percent on taxpayers so that they cannot use tax benefits to entirely avoid paying any substantial amount of income tax. <b>The AMT affects taxpayers who have what are known as "tax preference items". These include, among other things, long-term capital gains, accelerated depreciation, certain medical expenses, percentage depletion, certain tax-exempt income, certain credits, personal exemptions, and the standard deduction.</b>

Something a bit scarier.

In a brief issued by the Congressional Budget Office (No. 4, April 15, 2004),[2] the conclusion is clear:

Over the coming decade, a growing number of taxpayers will become liable for the AMT. <b>In 2010, if nothing is changed, one in five taxpayers will have AMT liability and nearly every married taxpayer with income between $100,000 and $500,000 will owe the alternative tax. </b>Rather than affecting only high-income taxpayers who would otherwise pay no tax, the AMT has extended its reach to many upper-middle-income households. As an increasing number of taxpayers incur the AMT, pressures to reduce or eliminate the tax are likely to grow.

[kvrdave]

What a load of poo. :grunt:

I am assuming that I got hit because of the rentals and have a fair amount of depreciation, etc.

[OldDude]

It is an evil plot by Congress to make us all "rich" and tax the shit out of us.

It was originally intended to trap ultrarich taxpayers, who used loopholes in the regular tax code, and make them pay some tax. Unlike the regular tax code, which is indexed for inflation, the AMT is not. So the destruction of the value of the dollar over the past 40 years has made most of us "rich" and "taxable" under the AMT. It has become a highly unfair tax affecting upper middle class, not the rich.

It has flat rates of 26% and 28% after an initial exemption which depends on your filing status. Most deductions and the personal exemptions for your kids are disallowed under AMT.

You pay whichever is greater, the AMT or the regular tax.

Lately, they have been increasing the AMT personal exemption for one year only to avoid trapping too many people. Last year, they didn't pass this relief until April, so in general, it is impossible to do good tax planning for AMT. If it wants to bite you in the ass, it will, and you can't do shit about it. Without the annual exemption fix, even people who file MFJ, no kids, and standard deduction would owe AMT, on top of regular tax, starting at AGI of about $150K. With the exemption fix, you usually don't get nailed unless you itemize, in the same income range.

TUrbotax automatically calculates the "shadow tax" in the background while doing your regular tax.

[al_bundy]

What a load of poo. :grunt:

I am assuming that I got hit because of the rentals and have a fair amount of depreciation, etc.


you might be better off putting all your properties into a separate corporation, paying the extra corporate taxes and paying yourself poverty wages to make yourself look poor.

if your tax lawyer doesn't know how to do it, find another one. NYC is full of them.

[kvrdave]

It hasn't ever been an issue before. I already pay for corporate tax returns, so that wouldn't matter much. But then you get into the problem of corporate taxes.

[Venusian]

I just did my taxes. Taxes suck. But I am getting some of my money back :) But they are still keeping a ton of it :(

[Vibiana]

kvrdave: I have an older brother in Michigan who is a CPA. He is a fierce libertarian. I think you guys need to get together for lunch and to talk about shooting things. :D

[al_bundy]

i think that you can kick off the AMT by having too much depreciation or some other expense like interest. when doing taxes why not minimize an expense like depreciation if it saves you money since it's not reported on a 1099 or 1098?

[kvrdave]

i think that you can kick off the AMT by having too much depreciation or some other expense like interest. when doing taxes why not minimize an expense like depreciation if it saves you money since it's not reported on a 1099 or 1098?

If you minimize depreciation, the government still treats it as though it has been fully depreciated when you sell it. Pay me now or pay me later.

[pedagogue]

Political Forum?

Bt.w....the AMT is BS. As someone who will fall into that, "F-You" range in a couple years....I am pretty pissed off.

-p

[OldDude]

Political Forum?

Bt.w....the AMT is BS. As someone who will fall into that, "F-You" range in a couple years....I am pretty pissed off.

-p

Your elected officials need to understand that it will put you in a "vote the bastards out" mood. They have 40 years of inflation to account for; that's the primary reason it is fucked up. They need to adjust the breakpoint between the two rates, the AMT exemption, and the AMT exemption phaseout figures for 40 years of inflation. It's really very simple.

[nemein]

Since this is more of a tax policy question than a straight "how to" question I'm moving it to the Political Forum.

[classicman2]

If you want to get the typical Republican persepective on the AMT watch Sen. Chuck Grassley (R/IA) speak on the floor of the U. S. Senate. He's the best friend to the 'let's give tax cuts to the rich' crowd you'll ever see.

[OldDude]

Gee, I thought my perspective was pretty typical.

In a few more years, the lack of inflation adjustment in the AMT system will cause people at the poverty line to be "rich" and subject to AMT. Democrats will talk out of the other side of their mouths then.

Edit: Actually, we are getting pretty close. IF the AMT exemption is allowed to revert to the statutory level, instead of another one-year-bandaid, all income over $45,000 (for married, filing joint) will be taxed at at least 26%.
By comparison, in the regular tax system, the 25% bracket in 2007 begins at TI of $63,700, for MFJ. Given 2 exemptions and standard deduction, this requires AGI of at least $81,200. For this simplostic scenario, AMT is $9412 and reg. tax $8772.50. Crossover occured at income of $75,386, so we now have an official Democratic definition of "filthy rich."

Higher rate of 28% applies for higher incomes, and exemption varies with filing status. I do expect Congress to pass another one year patch sometime before the year is over, but this is why it gets attention every frigging year. They never fix it properly or link it to inflation with autoadjust like the regular tax system. They force it to be highly politicized.

[classicman2]

I assume you're not aware that many Democrats are for the repeal of the ATM.

Perhaps you should reserve your negative comments until you do a little more research on that. It will give them a little more credibility if you do. :lol:

[classicman2]

Last year Sen. Chuck Schumer and other Democrats led the effort to amend the AMT where it would not affect the middle class.

Guess who prevented that effort - none other than Sen. Bill Frist, the Republican Majority Leader.

[OldDude]

Last year Sen. Chuck Schumer and other Democrats led the effort to amend the AMT where it would not affect the middle class.

Guess who prevented that effort - none other than Sen. Bill Frist, the Republican Majority Leader.

Seriously, do you have documentation of their proposal? This tax needs a major revision of the personal exemption, and automatic linking to inflation so it is not an "annual effort." If anybody is proposing serious reform, I'd like to understand their proposal.

[classicman2]

Google is your friend. ;)

[OldDude]

I did Google. It is true in Dec 2005, Frist bumped an AMT patch off the agenda. However, in early 2006, they came back and patched the AMT exemptions; for MFJ, it was patched from $45,000 to $62,550, alleviating the concern for many, me included, for one more year. (I'm not sure that is an adequate fix to satisfy "everybody," even for 2006)

For Shumer, I find press releases bemoaning "how terrible it all is." But I found ZERO documentation on the actual fix he was proposing. In the absence of specific figures, years of application, etc, I can't tell whether their proposal was more meaningful than what actually happened (which was meaningful for one year only, not a long term fix).

So, in the absence of that documentation, I'm not ready to sign up for "Democrats are my friends" taxwise, at least, not yet. :)

[classicman2]

No, you align yourself with the Republicans who don't want the rich to pay the ATM. :)

[OldDude]

Why, thank you. I will probably never BE that rich, but I have my aspirations, you know. :)

However, the rich generally avoid AMT because the income tax rates are higher than the AMT in the upper brackets. Most of the abusive loopholes the AMT was designed to catch have been closed and replaced by new loopholes. The "rich" only get caught if they buy the wrong flavor of "tax-free munis" (depending on how the money is used, they may be taxable under AMT; never buy a taxable tax-free muni).

The middle class are caught entirely by having too many deductions and exemptions (both of which are phased out for the very rich in the regular tax system, so they don't matter). [NOTE: That may change in the future as these phaseouts are being phased out.]

You should compute some sample cases to see that what I say is true, mathematically. Don't believe the pap published by your "tax the rich" Congressmen. They really loophole the rich, including themselves.