Archives For Alternative Minimum Tax

Every tax year stands on its own, and by the time you start figuring your taxes in April it’s usually too late to do much about it. That’s why a quick check-up before year end is a great idea and although there’s no shortage of tax advice about moves you should make, that doesn’t mean you should be paralyzed.

First of all, you must consider your own circumstances. Focus on what’s most important to you and what has the biggest bottom-line effect. If you need ideas, here are three of the best ones that we can provide: Continue Reading…

PLANNING FOR INDIVIDUALS [Part 2/7]

Surtax On Net Investment Income (NII)

Starting in 2013, higher-income taxpayers may be liable for a 3.8 percent NII surtax. The NII surtax on individuals equals 3.8 percent of the lesser of: Continue Reading…

Inflation is not typically a good thing; however, when dealing with the Tax Code, it could mean more money being saved in your pockets. Continue Reading…

With many tax reform proposals floating around Congress, Senator Mike Lee (R- UT) outlined his newest plan in a speech titled “Tax Reform, the Family, and the Pursuit of Happiness.” Senator Lee characterized his ideas as “more pro-growth, pro-opportunity, and pro-family” than our current system. Continue Reading…

Tax-related issues took center stage in 2012. Between the drawn-out fiscal cliff negotiations, Romney’s 47% comment, the persistence of the Occupy movement, updated rules from the IRS and the presidential election, there was no shortage of tax talk. The talk becomes reality for Americans tomorrow (Jan. 30, 2013), when the IRS officially begins the 2012 tax filing season. In this post, we outline the highlights, predictions, changes, opinions and other worthy information on the 2012 tax filing season.

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Thanks to Face the Facts USA for producing this infographic explaining the Alternative Minimum Tax (AMT). Check out our original post on this subject by scrolling the above post: Forget the Cliff: Why the AMT is the Real Taxmageddon

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FeaturedImageThe Alternative Minimum Tax (AMT) has its own quiet corner in the world of US tax law, at least for now.  Simply put, every year anyone fling a return determines their regular tax rate and their AMT rate.  The higher of the two is what they owe.  For roughly 95% of Americans that’s the regular tax and they never worry about the AMT, but for some – typically, upper-middle income families with children, the AMT can be significantly higher.

This story begins in 1969, when 155 of the country’s wealthiest households came under the national spotlight for paying little to no income tax. Collectively, they provided for just 0.1% of total government revenue – far less than what the ultra rich contribute today (yes, even considering the plethora of cuts, deductions, loopholes etc. that have been implemented in the past few decades).  This untapped revenue source prompted legislators to create the first “millionaire’s tax,” formally known as the Alternative Minimum Tax.  The policy was created as a way to ensure that the nation’s wealthiest citizens would have to pay a minimum amount of taxes.  Soon after becoming law, the government was collecting nearly 7 times as much revenue from the ultra rich than they had been; the AMT was largely regarded as both a political and fiscal success.  The feat had one small problem though: The AMT legislation failed to index for inflation, leading the number of eligible households to slowly creep-up year after year.  Although there have been several reforms, known as “patches,” to increase the exemption levels, the most recent patch expired at the beginning of 2012.

IRS building on Constitution Avenue in Washing...

IRS building on Constitution Avenue in Washington, D.C.. (Photo credit: Wikipedia)

That means that for the moment, as far as the IRS is concerned, the AMT for 2012 has the same parameters as it did 20 years ago, in 1993, the last time congress made a permanent change to the income thresholds [1].  If that doesn’t sound too bad, consider there has been 60% inflation since then.  So, if nothing happens before the year ends then 25 – 30 million taxpayers will be in for a rather unhappy New Year greeted with higher bills and smaller reduction opportunities.  In many circumstances, the tax hike would be even larger then paying new rates via the expiration of the Bush tax cuts. Upper-middle income families with children living in high tax states would be the most vulnerable, because two tax breaks — itemized deductions from state and local taxes and personal exemptions, are disallowed under the AMT.  The scenario gets worse: IRS commissioner Steven Miller says,”If lawmakers fail to protect the middle class from having to pay the Alternative Minimum Tax by Dec. 31, next year’s tax filing season will be a mess for tens of millions of taxpayer,” [2]. On top of an onslaught of expected filing errors, they may need to halt 60 million taxpayers from filing their returns until late March.  Yikes.

So while congress haggles and the media obsesses over the fiscal cliff and expiration of the Bush era tax-cuts, let’s home some lawmakers remember the AMT could make that New Years Day hangover last a LOT longer.

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JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.

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