The AMT (Adjusted Minimum Tax)

[HeroOfPellinor]

Let's start at the beginning with a quick recap. AMT was instituted back in 1970 after members of Congress learned that there were a handful of super-rich people who took advantage of tax laws to avoid paying any tax.


The legislators targeted such tax avoidance by developing a second set of rules for the AMT, which prohibits individuals from claiming certain deductions or "preferences" when they're figuring out how much of their income is taxable. These preferences include things like state and local taxes, real estate taxes or personal exemptions that otherwise take the sting out of tax bills.

The concept behind the AMT may seem fair. But the trouble is that because of inflation, it's hitting middle and upper-middle class people more than ever.

http://money.cnn.com/2004/02/25/pf/taxes/amt_stories/

Starting with your taxable income before personal exemptions, it adds these preferences to create a higher tax base for AMT purposes. The major AMT preferences include the following:

Miscellaneous itemized deductions;
Deducted state, local, foreign, personal property and real estate taxes;
Medical expenses, except to the extent they exceed 10% (rather than the normal 7.5%) of your adjusted gross income;
Standard deductions;
Incentive stock options (the excess of AMT income over regular income), and
Certain business-related items and certain municipal interest income on ?AMT bonds.?

From this new base, you subtract your exemption amount ($45,000 for a joint return; $33,750 for a single) which is reduced, potentially to zero, as your income increases. Your AMT is 26% of your new base of up to $175,000 in earnings, and 28% on the excess.

http://moneycentral.msn.com/ar...es/tax/basics/1407.asp

Supposedly this thing is going to hit 1/3 of all tax payers by 2010. So, basically, Bush's tax cuts are going to be irrelevent and already are for many. I know a few couples who are in or near the top 2% and both got no tax break from the Bush tax cuts and were baffled as to why.

Bush could reduce all our taxes to 0% and we'd still have to pay based on the AMT scale.

Here's what the IRS says.

You may have to pay AMT if your taxable income for regular tax purposes, combined with certain adjustment and tax preference items, is more than the exemption amounts below:

$58,000 if you are married filing a joint return or a qualified widow(er),
$40,250 if you are single or head of household, or
$29,000 if you are married filing a separate return.

The calculation method is pretty convoluted from what I can see, so, hopefully, we can get somebody with some experience around this to explain the real potential impact on the middle/upper working class.

 

[CPA]

It is very convoluted. I will actually be impacted by it this year and I am very middle class. And as you can see by the AMT exemption amounts, the "marriage penalty" is still alive and well.

 

[cquark]

Originally posted by: CPA
It is very convoluted. I will actually be impacted by it this year and I am very middle class. And as you can see by the AMT exemption amounts,

The AMT is convoluted and is hitting middle class taxpayers more and more. It needs to be fixed.

the "marriage penalty" is still alive and well.

Of course, the marriage bonus is still larger than the marriage penalty, as while some married couples pay more, others pay less than equivalent unmarried people, so that on average single people pay a disproportionate amount of income taxes.

 

[alent1234]

Originally posted by: HeroOfPellinor

Let's start at the beginning with a quick recap. AMT was instituted back in 1970 after members of Congress learned that there were a handful of super-rich people who took advantage of tax laws to avoid paying any tax.


The legislators targeted such tax avoidance by developing a second set of rules for the AMT, which prohibits individuals from claiming certain deductions or "preferences" when they're figuring out how much of their income is taxable. These preferences include things like state and local taxes, real estate taxes or personal exemptions that otherwise take the sting out of tax bills.

The concept behind the AMT may seem fair. But the trouble is that because of inflation, it's hitting middle and upper-middle class people more than ever.

http://money.cnn.com/2004/02/25/pf/taxes/amt_stories/

Starting with your taxable income before personal exemptions, it adds these preferences to create a higher tax base for AMT purposes. The major AMT preferences include the following:

Miscellaneous itemized deductions;
Deducted state, local, foreign, personal property and real estate taxes;
Medical expenses, except to the extent they exceed 10% (rather than the normal 7.5%) of your adjusted gross income;
Standard deductions;
Incentive stock options (the excess of AMT income over regular income), and
Certain business-related items and certain municipal interest income on ?AMT bonds.?

From this new base, you subtract your exemption amount ($45,000 for a joint return; $33,750 for a single) which is reduced, potentially to zero, as your income increases. Your AMT is 26% of your new base of up to $175,000 in earnings, and 28% on the excess.

http://moneycentral.msn.com/ar...es/tax/basics/1407.asp

Supposedly this thing is going to hit 1/3 of all tax payers by 2010. So, basically, Bush's tax cuts are going to be irrelevent and already are for many. I know a few couples who are in or near the top 2% and both got no tax break from the Bush tax cuts and were baffled as to why.

Bush could reduce all our taxes to 0% and we'd still have to pay based on the AMT scale.

Here's what the IRS says.

You may have to pay AMT if your taxable income for regular tax purposes, combined with certain adjustment and tax preference items, is more than the exemption amounts below:

$58,000 if you are married filing a joint return or a qualified widow(er),
$40,250 if you are single or head of household, or
$29,000 if you are married filing a separate return.

The calculation method is pretty convoluted from what I can see, so, hopefully, we can get somebody with some experience around this to explain the real potential impact on the middle/upper working class.

too little info, but how do they not get any tax benefits? the wife and I are in the top 5% and our taxes went down. even with the tax cuts you still need to do tax planning.

you have to do things like 401k, FSA, transportation benefits and other things. on another forum we were arguing about this and I showed the math of how a couple earning about $120k a year gross can get down to $80k a year or so AGI with a few simple things.

 

[Infohawk]

Anyone care to define why they are middle-class? I have found a lot of people consider themselves middle-class who really aren't. The average salary in this country is fairly low.