Congress passes AMT patch

[chinaco]

Since there is an AMT, it should probably only kick in for people that are making above $200 or $300 k per year. Perhaps even a bit higher.

Our tax system is so convoluted ... I do not like the overall approach to progressive taxes.

A progressive tax system can work... but all of the attempted loopholes and patches on it have turned it into a mess.

 

[Independent]

You seem to forget that many of us ordinary tax payers are caught in AMT hell. We are certainly not incredibly wealthy, we do ok by many standards. However, AMT triggered for us even though we have no deductions besides donations to charity and state tax. We have no dependents and I think our contributions for Federal tax before adding in the AMT was more than sufficient. We live in a State (Ca.) which requires high incomes just to get by.

This is probably the view of the majority of AMT payers. I'll take the contrarian position and say that "AMT hell" is something of an overstatement. I don't know how you got into an AMT position, but I can do some sample calculations for a "typical" high income family.

The median income for a family of four is about $70,000. Consider a family with 3 times that income, or $210,000. I think that if they get "caught" by the AMT, then the total of their regular FIT plus their AMT will be about 12% of their gross income.

That's a significant amount of money. But the total individual FIT is about 10% of total personal income. IF we're going to collect that much in FIT, it seems pretty plausible that a family with 3x the median income would pay slightly more than 10%.

Now the "IF" is a big deal. I find it easy to say that the federal gov't spends "too much", so we need to collect too much in taxes to cover all that spending. But, IF we're going to spend that much, we ought to collect enough tax to pay for it, and the AMT doesn't seem to be a terribly "unfair" tax to me.


My calculation for a "typical high income family" goes like this. (Maybe I'm misunderstanding the AMT rules, but this is what I get from the worksheet in the tax return.)
The AMT allows deductions for 401k contributions, charitable contributions, and mortgage interest. Suppose they add up to 25% of this family's $210,000 gross income. That leaves $157,500. Then they get the $66,250 fixed deduction, leaving $91,250 taxed at a flat 26%. That's $23,725. If their regular FIT is less than this, then AMT increases the total up to this amount. So the FIT including AMT is 11.3% of their gross income.

 

[Rustic23]

The AMT effecting 'us' is a classic of what I have pointed out before.

The people on this board that want to tax the rich are talking about themselves! I wager the majority of the posters on this board would be considered rich by 50 to 60% of the population.

 

[meridiver]

It's not that I object to paying more taxes. What I do object to is the parallel AMT tax universe that many of us inhabit. Those of you who don't pay it have no idea what a pain it is to calculate.

I just wish they would raise the tax brackets and eliminate the AMT. Then at least I'd know where I stand, and I wouldn't have to pay a tax preparer $700/yr to do a return that I would otherwise be perfectly capable of doing. Unfortunately this is unlikely to happen since no politician wants to "raise taxes" openly, they instead want to pretend that they are keeping them lower even though the effect of the AMT is the same as raising them.

 

[WanderALot]

Can you provide us a link?

I think this is it:

Tax Calculator - Tax Tools and Calculators - H&R Block

 

[REWahoo]

Thanks.

 

[clifp]

It's not that I object to paying more taxes. What I do object to is the parallel AMT tax universe that many of us inhabit. Those of you who don't pay it have no idea what a pain it is to calculate.

I just wish they would raise the tax brackets and eliminate the AMT. Then at least I'd know where I stand, and I wouldn't have to pay a tax preparer $700/yr to do a return that I would otherwise be perfectly capable of doing. Unfortunately this is unlikely to happen since no politician wants to "raise taxes" openly, they instead want to pretend that they are keeping them lower even though the effect of the AMT is the same as raising them.

I agree with you and it was my primary objection with AMT. Now that I no longer pay AMT, but have to go through the calculation each year to calculate how much of AMT tax credit carry forward I can use (argh what a mouthful) I have a different idea.

I think we should scrape the conventional tax and use the AMT system. AMT itself isn't all that complicated a couple of tax brackets, a very large standard deductions, and it pretty much eliminates the zillions of exceptions (e.g. special education and training credit for left-hand Native Americans, engaged in Mohair). It has some screwy parts but in general it does ensure that wealthy Americans pay taxes, and the big standard deduction would eliminate a lot of the petty cheating that Americans do with the current tax system.

 

[bamsphd]

My first choice would be a tax system indexed against my income. Everyone making more than me must compute their income and pay taxes. I would not need to compute my income, keep any records, or pay any taxes.

Returning to reality, my main objection to the AMT is simply that it requires me to compute my taxes twice. One set of paperwork is definitely enough!

I think we should scrape the conventional tax and use the AMT system. AMT itself isn't all that complicated a couple of tax brackets, a very large standard deductions, and it pretty much eliminates the zillions of exceptions (e.g. special education and training credit for left-hand Native Americans, engaged in Mohair). It has some screwy parts but in general it does ensure that wealthy Americans pay taxes, and the big standard deduction would eliminate a lot of the petty cheating that Americans do with the current tax system.

Though I would probably pay more in taxes, I think that I would support an AMT only system, assuming it was indexed against inflation.

The idea almost reminds me of a tax proposal a few years back advocated by a presidential candidate with a magazine named after him.

 

[meridiver]

I think we should scrape the conventional tax and use the AMT system. AMT itself isn't all that complicated a couple of tax brackets, a very large standard deductions, and it pretty much eliminates the zillions of exceptions (e.g. special education and training credit for left-hand Native Americans, engaged in Mohair). It has some screwy parts but in general it does ensure that wealthy Americans pay taxes, and the big standard deduction would eliminate a lot of the petty cheating that Americans do with the current tax system.

This would be fine with me also. The only problem is that sooner or later (probably sooner) our wonderful Congress would just start tacking on all of those "special" deductions and pretty soon it would look just like the old system. Realistically, I don't think there is anyway to keep their hands off the tax code. It is just too tempting of a target.

 

[Tadpole]

This would be fine with me also. The only problem is that sooner or later (probably sooner) our wonderful Congress would just start tacking on all of those "special" deductions and pretty soon it would look just like the old system. Realistically, I don't think there is anyway to keep their hands off the tax code. It is just too tempting of a target.

probably sooner is not even close. Certain things like mortgage interest would probably included from the get-go.

 

[audreyh1]

If AMT had been indexed to inflation, it would have kept the same limited scope it had when it was first created.

Audrey

 

[Alan]

Though I would probably pay more in taxes, I think that I would support an AMT only system, assuming it was indexed against inflation.

The idea almost reminds me of a tax proposal a few years back advocated by a presidential candidate with a magazine named after him.

ditto - I would pay more in AMT, but prefer the simpler approach with fewer loopholes.

 

[Independent]

This would be fine with me also. The only problem is that sooner or later (probably sooner) our wonderful Congress would just start tacking on all of those "special" deductions and pretty soon it would look just like the old system. Realistically, I don't think there is anyway to keep their hands off the tax code. It is just too tempting of a target.

I would also vote for the AMT replacing our current system - just because it has fewer complications. Simpler is better.

But I agree with meridiver, Congress would immediately start adding new holes, that's one way to get campaign money.

I'd go so far as to support a consitutional amendment that says "Regarding taxes on income, Congress shall not vary rates by the source, use, or form of the income."

 

[myself]

You seem to forget that many of us ordinary tax payers are caught in AMT hell. We are certainly not incredibly wealthy, we do ok by many standards. However, AMT triggered for us even though we have no deductions besides donations to charity and state tax. We have no dependents and I think our contributions for Federal tax before adding in the AMT was more than sufficient. We live in a State (Ca.) which requires high incomes just to get by.

Well, all I can suggest is to get some deductions. Or of course lower your income.
We paid only 2.49% in taxes last year due to deductions. Of course, I wouldn't suggest everyone get a short term mortgage (12.5 years left on a 15 year mtg) or have 4 kids either.

 

[myself]

It's not that I object to paying more taxes. What I do object to is the parallel AMT tax universe that many of us inhabit. Those of you who don't pay it have no idea what a pain it is to calculate.

I just wish they would raise the tax brackets and eliminate the AMT. Then at least I'd know where I stand, and I wouldn't have to pay a tax preparer $700/yr to do a return that I would otherwise be perfectly capable of doing. Unfortunately this is unlikely to happen since no politician wants to "raise taxes" openly, they instead want to pretend that they are keeping them lower even though the effect of the AMT is the same as raising them.

Why is it a pain? There are plenty of programs that make this considerably easier and automatic since it is required by the Federal Gov't. Now, if you have a $210,000 household income (as someone else on this board calculated), I think spending a lousy $20 or so would be sufficient for your needs, thereby relieving you of the excrutiating pain of having to calculate it.

 

[FIRE'd@51]

Well, all I can suggest is to get some deductions. Or of course lower your income.
We paid only 2.49% in taxes last year due to deductions. Of course, I wouldn't suggest everyone get a short term mortgage (12.5 years left on a 15 year mtg) or have 4 kids either.

BTW, four kids won't help if you get trapped by the AMT, since personal exemptions are not allowed there.

 

[myself]

BTW, four kids won't help if you get trapped by the AMT, since personal exemptions are not allowed there.

Yes, I know.
My goal is to get back to the point where we use the standard deduction, although I believe anyone can opt for that. Some (like me) choose to go the route that gives us more taxes back while they can.
And if all things progress as they have been (raising the standard deduction and mortgage interest we pay going down), we'll be back to the standard deduction in the next 4-6 years.
(Truth be told that we'll just be hitting the 6 figure income mark this year)

 

[myself]

If AMT had been indexed to inflation, it would have kept the same limited scope it had when it was first created.

Audrey

Also, if you calculate how much people actually pay, it is usually quite a bit less than what their tax bracket is (after all, this is a progressive tax system).
For AMT purposes, if you're MFJ and income is below $150k, you won't be suceptible to the AMT. And single is $112,500 income.
Keep in mind I live in the highest property tax state in the US (NJ) according to most financial magazines.

Here's the AMT form in case anyone needs it: http://www.irs.gov/pub/irs-pdf/f6251.pdf

 

[jIMOh]

Yeeeck, I think I need to look up info on the AMT, I had no idea we had been skirting just under...

Just because you make X amount doesn't immediately trigger AMT. My understanding is AMT is triggered more by the deductions you take than it is by the income you make.

 

[FIRE'd@51]

For AMT purposes, if you're MFJ and income is below $150k, you won't be suceptible to the AMT. And single is $112,500 income.

Not necessarily true. If your state and local taxes (income and property) are high, you may be, even with AGI below 150k.

 

[audreyh1]

Just because you make X amount doesn't immediately trigger AMT. My understanding is AMT is triggered more by the deductions you take than it is by the income you make.

It also depends on how much of your income is capital gains. A large cap gains portion easily triggers AMT on your ordinary income. Unfair, but there it is!

Audrey