AMT to impact 27 million filers?

[newellcr]

SUBJECT: AMT to impact 27 million filers?
Hello Folks,

Long time no post on my part. I check in, occasionally, though. Gotta love it when the FIRE accumulation plan seems to be working.

My question is about the Alternative Minimum Tax. My tax preparer said if the tax law remains as written, I will be one of 27 million filers impacted by the AMT this year. She said this is up from 2.5 million filers last year. My hit is expected to be about $3500 extra in taxes as we haven't been AMT victims before. If the AMT Tax law as similar to last year, I wouldn't be impacted.

Finally the question. Has anyone seen any news articles about Congress actually trying to address the AMT this year?

Thanks,

Chris

 

[Martha]

Last time this happened Congress waited until the very last minute to do anything. My bet is a last minute temporary fix.

 

[farmerEd]

The only way they are going to "fix" it is to collect the tax another way...its too expensive to just do away with and the revenue needs to come from someplace. So while they may do away with the AMT, it will ultimately get paid more-or-less by the same people, in a different way.

The "fix" is to reduce spending, and thus the need to collect so much in taxes...I won't hold my breath.

 

[LOL!]

One trick to help with AMT is to prepare your own taxes. That way you can run several scenarios or "what-ifs" in your tax software and see how to avoid AMT. That what we do and we have never paid AMT.

So what are those scenarios that help us? Glad you asked ... here's a couple of them.

First, the amount of charity giving can have a big effect on AMT. Last year, we saw that we were going to owe a small amount of AMT, but if we gave away another $1000, then we would avoid it.

Second, we saw that if we accepted our bonuses in December, then AMT. So we asked our employers to give the bonus checks in January and they agreed. You may think that just makes it worse this year, but we turn 50 later this year, so we get to put an additional $10K into 401k plans.

Third, it looked like if we paid our all our property taxes, then we would pay AMT. So we figured out with the tax program what the highest partial payment of property taxes would be to avoid AMT.

Fourth, we saw that we had too much dividend income in taxable accounts. So we rearranged our asset allocation to minimize that. Don't forget that unrealized capital gains are NOT taxed.

Anyways, it's surprising how attention to details can minimize your taxes. Those details are things that your tax preparer may not be able to help you with. Or the savings in taxes will be lost to the amount you pay your tax preparer.

 

[newellcr]

Hello Martha,

It's nice to see you are still around. Are all of the ER's still flirting?... I always got a chuckle out of that. Thanks for the reply. I hope that there is a fix, last minute or not. Also, thanks for the response to my other question. The article helped, but it's still a bit of a mystery for me.

Farmer Ed,

I agree that the taxes need to come from somewhere. The surprising thing to me was my tax preparer told me that the 'exemption' (I'm guessing it is the AMT exemption on page 1 of the link that Martha sent in response to my AMT part 2 thread) was $140k(?) for 2006 and it drops to $40k(?) this year. Last minute fixes are probably to blame for the lack of continuity. It's like the inheritance tax snag. What is it? In 2011 the inheritance tax rate reverts to the old way. I wouldn't want to be an old codger sitting on a couple of mil with greedy kids in 2010… I'm not a tax preparer so the dates and figures are probably off.

LOL,

I agree with your thoughts on doing the taxes myself, but. I used to do so. I figured out that after I paid for the tax software, installed it, ran it, fought with it, cursed it, figured it out, cursed it again, fixed the printer, ad nauseam, I saved $8/hr by doing the taxes myself. That doesn't count the physical wear and tear and the loss of a weekend with the family. The AMT is a different animal and one that is likely to change and the software is only good using last year's forecast of what the AMT will look like. It's frustrating. If congress changes the exemption back to $140k or indexes it for inflation, I'll probably never be hit by the AMT.

I should have asked more questions of the tax preparer and will when she returns from vacation next month. It's really surprising to me as our deductions aren't strange or very large (mortgage interest, child care, state and property taxes, etc). I guess that with the lower AMT exemption, these deductions are enough. It's good to hear that charitable deductions are a way to reduce the AMT hit. We have a ton of baby clothes and things to get rid of...

Thanks to all for the replies.

Chris

 

[maddythebeagle]

Wow, interesting post, LOL....

 

[free4now]

Great tips, LOL.

I prepare my taxes myself for the same reason: by knowing the details I can proactively make decisions to improve my tax situation. If I used a tax preparer I wouldn't be seeing those details as closely and wouldn't have as good a handle on what my options are.

 

[FIRE'd@51]

The AMT exemption for 2006 was 62.550K, not 140K.