AMT TAX ??

[kenmac]

To repeat what Mossroad said, the question is fine, no need for people to get all bent out of shape. It's the discussion that that's sparse. There are a lot of people on this board who know about hvac, plumbing, electrical, gas, and automobile repairs as well as a lot of people who own guns. Not many tax accountants. There are a lot better places on the net to ask tax questions and several links have been posted with the answer.

I hope you don't think I'am bent out of shape cause, I'm not. I'm not very smart but, I'm smart enough to not to argue with a mod. & get on their bad boy list


I think skypup said it best

 

[Alan L.]

The AMT was designed to catch people that weren't paying taxes because of deductions. Supposedly higher income people, but it is catching more people now.

Basically there are some deductions that aren't allowed for AMT vs regular tax, some different depreciation methods allowed. For example taxes (other than related to a business or a rental property) are not deductible for AMT. Neither are miscellaneous itemized deductions. Medical expense have a bigger floor for AMT.

Make all of the adjustments to income, subtract an AMT exemption amount (which phases out at higher income levels) and multiply the result by 26%, then compare to regular tax and if more, you have some AMT ("alternative minimum tax".

It is truly a parallel tax system and when it comes into play there can be varying amounts for regular vs AMT such as net operating loss carryovers, passive loss carryovers, investment interest carryovers, etc. Thank God for tax software.

If you find you are paying AMT there are a few things you can do. For example if you have some raw land you are holding for investment you can elect to capitalize the taxes on it to be offset against future gain rather than lose the deduction completely due to the AMT.

 

[DUMBDOG]

The AMT was designed to catch people that weren't paying taxes because of deductions. Supposedly higher income people, but it is catching more people now.

Basically there are some deductions that aren't allowed for AMT vs regular tax, some different depreciation methods allowed. For example taxes (other than related to a business or a rental property) are not deductible for AMT. Neither are miscellaneous itemized deductions. Medical expense have a bigger floor for AMT.

Make all of the adjustments to income, subtract an AMT exemption amount (which phases out at higher income levels) and multiply the result by 26%, then compare to regular tax and if more, you have some AMT ("alternative minimum tax".

It is truly a parallel tax system and when it comes into play there can be varying amounts for regular vs AMT such as net operating loss carryovers, passive loss carryovers, investment interest carryovers, etc. Thank God for tax software.

If you find you are paying AMT there are a few things you can do. For example if you have some raw land you are holding for investment you can elect to capitalize the taxes on it to be offset against future gain rather than lose the deduction completely due to the AMT.

This is one of the reasons that I got out of the business twenty five years ago. Four years of college, certificate and five years of working for a CPA firm and it got boring. There are so many more interesting vocations out there where people are happy to see you. Now I get to use a tractor on a daily basis. Do not regret the schooling and the experience, but walking around my sisters house one evening and picking the fuzz out of her carpeting, I knew that I had selected the wrong vocation.

 

[smfcpacfp]

The AMT was designed to catch people that weren't paying taxes because of deductions. Supposedly higher income people, but it is catching more people now.

Basically there are some deductions that aren't allowed for AMT vs regular tax, some different depreciation methods allowed. For example taxes (other than related to a business or a rental property) are not deductible for AMT. Neither are miscellaneous itemized deductions. Medical expense have a bigger floor for AMT.

Make all of the adjustments to income, subtract an AMT exemption amount (which phases out at higher income levels) and multiply the result by 26%, then compare to regular tax and if more, you have some AMT ("alternative minimum tax".

It is truly a parallel tax system and when it comes into play there can be varying amounts for regular vs AMT such as net operating loss carryovers, passive loss carryovers, investment interest carryovers, etc. Thank God for tax software.

If you find you are paying AMT there are a few things you can do. For example if you have some raw land you are holding for investment you can elect to capitalize the taxes on it to be offset against future gain rather than lose the deduction completely due to the AMT.

This is a pretty good synopsis. Let me just add a few things.

The reason for the imposition of this tax is that some people (and corporations) were able to arrange their finanical affairs in such a way as to completely eliminate all income taxes. They weren't cheating, just using tax provisions to their advantage. We all do this. In my own case I maximize my tax sheltered savings through my employer (403(b) and 457(c) savings plans) and have a SIMPLE and Roth IRA from my side job income. Fortunately tax sheltered savings is NOT one of the adjustments mentioned above.

The first iteration in the process was something called the regular minimum tax. You paid the larger of the regular minimum tax, OR your regular income tax.

After seeing some problems with this system, congress created a third sytem called the alternative minimum tax. Now your tax liability was the larger of your regular income tax PLUS the regular minimum tax, OR the new alternative minimum tax.

Finally after taxpayers ******* about the complexities of three parallel tax systems it was changed to its current model. The tax preferences from the regular minimum tax were combined with the +/- adjustments of the alternative minimum tax to form the AMT of today. This all happened in the 1960's and 70's I believe.

The reason why more people are subject to this tax today is due to to the fact that taxes at the state and local level are not deductible as itemized deductions. As state and local taxes have risen due to reduced federal revenue sharing and Medicade mandates, states and their insturmentalities have been forced to raise taxes.

There are actually several tax rates, not just the 26%. This applies to the first $175,000 of tax base, then the rate rises to 28%. Further dividends and long term capital gains that are subject to the 5% and 15% tax rates for regular income tax are subject to that same rate here.

I agree with the poster quoted - thank god for tax software. It does most of the work for you. However there are a few adjustments that would not be picked up automatically by tax software, such as stock options granted by employers.

One of the few things that Democrats and Republicans say that agree upon - there needs to be another rethinking of this tax to reduce its impact. Being the cynic that I am, I quesiton their resolve, since nothing permanent has been done, and it is beginning to raise big tax dollars which are hard to gve up in deficit spending times. As you may know, they did some tinkering with this tax just last week, passing a tax bill to increase the exemption for it, yet again.

I have been a tax professor for the last 31 plus years. I will be retiring at the end of April. I have really enjoyed teaching the subject due to the challenge, but as a citizen and taxpayer, it is maddeningly complex - way too complex.

 

[kenmac]

Thanks for the info. guys. I knew in time someone would reply. Even on a tractor board

 

[Alan L.]

Unfortunately the AMT is one of the most tame tax subjects nowadays. There are other areas that make me long for retirement. Beware of tax simplification, it usually means another wrinkle is introduced.

I remember the days when a deduction was a deduction, and there a "maximum tax" instead of a minimum tax.

I am a huge Ronald Reagan supporter however his Tax Reform Act of 1986 introduced much of the complexity that we have today. His lower tax rates were a big help to the economy but real estate had trouble surviving the '86 act.

 

[SkyPup]

Suppose that every day, ten men go out for beer

and the bill for all ten comes to $100.

If they paid their bill the way we pay our taxes, it would go
something like this:

The first four men (the poorest) would pay nothing.

The fifth would pay $1.

The sixth would pay $3.

The seventh would pay $7.

The eighth would pay $12.

The ninth would pay $18.

The tenth man (the richest) would pay $59.

So, thatç—´ what they decided to do.

The ten men drank in the bar every day and seemed quite happy
with the arrangement, until one day, the owner threw them a
curve: since you are all such good customers, he said,
he's going to reduce the cost of your daily beer by $20.
drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our
taxes so the first four men were unaffected. They would still
drink for free.

But what about the other six men - the paying customers? How
could they divide the $20 windfall so that everyone would get
his fair share? They realized that $20 divided by six is
$3.33. But if they subtracted that from everybodys share,
then the fifth man and the sixth man would each end up being
paid to drink his beer.

So, the bar owner suggested that it would be fair to reduce
each man's bill by roughly the same amount, and he proceeded
to work out the amounts each should pay.

And so:

The fifth man, like the first four, now paid nothing
(100% savings).

The sixth now paid $2 instead of $3 (33%savings).

The seventh now pay $5 instead of $7 (28%savings).

The eighth now paid $9 instead of $12 (25% savings).

The ninth now paid $14 instead of $18 (22% savings).

The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four
continued to drink for free. But once outside the restaurant,
the men began to compare their savings.

I only got a dollar out of the $20, declared the sixth man.
He pointed to the tenth man, but he got $10!

Yeah, thats right, exclaimed the fifth man. I only saved
a dollar, too. Its unfair that he got ten times more than I!

That's true! shouted the seventh man. Why should he get $10
back when I got only two? The wealthy get all the breaks!

Wait a minute, yelled the first four men in unison. He
didn't get anything at all. The system exploits the poor!

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the
nine sat down and had beers without him. But when it came time
to pay the bill, they discovered something important. They
didn't have enough money between all of them for even half
of the bill!

And that, boys and girls, journalists and college professors,
is how our tax system works. The people who pay the highest
taxes get the most benefit from a tax reduction. Tax them too
much, attack them for being wealthy, and they just may not
show up anymore. In fact, they might start drinking overseas
where the atmosphere is somewhat friendlier.

 

[AlanB]

Thats scary Skypup.

 

[TCJatko]

Suppose that every day, ten men go out for beer

and the bill for all ten comes to $100.

If they paid their bill the way we pay our taxes, it would go
something like this:

The first four men (the poorest) would pay nothing.

The fifth would pay $1.

The sixth would pay $3.

The seventh would pay $7.

The eighth would pay $12.

The ninth would pay $18.

The tenth man (the richest) would pay $59.

So, thatç—´ what they decided to do.

The ten men drank in the bar every day and seemed quite happy
with the arrangement, until one day, the owner threw them a
curve: since you are all such good customers, he said,
he's going to reduce the cost of your daily beer by $20.
drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our
taxes so the first four men were unaffected. They would still
drink for free.

But what about the other six men - the paying customers? How
could they divide the $20 windfall so that everyone would get
his fair share? They realized that $20 divided by six is
$3.33. But if they subtracted that from everybodys share,
then the fifth man and the sixth man would each end up being
paid to drink his beer.

So, the bar owner suggested that it would be fair to reduce
each man's bill by roughly the same amount, and he proceeded
to work out the amounts each should pay.

And so:

The fifth man, like the first four, now paid nothing
(100% savings).

The sixth now paid $2 instead of $3 (33%savings).

The seventh now pay $5 instead of $7 (28%savings).

The eighth now paid $9 instead of $12 (25% savings).

The ninth now paid $14 instead of $18 (22% savings).

The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four
continued to drink for free. But once outside the restaurant,
the men began to compare their savings.

I only got a dollar out of the $20, declared the sixth man.
He pointed to the tenth man, but he got $10!

Yeah, thats right, exclaimed the fifth man. I only saved
a dollar, too. Its unfair that he got ten times more than I!

That's true! shouted the seventh man. Why should he get $10
back when I got only two? The wealthy get all the breaks!

Wait a minute, yelled the first four men in unison. He
didn't get anything at all. The system exploits the poor!

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the
nine sat down and had beers without him. But when it came time
to pay the bill, they discovered something important. They
didn't have enough money between all of them for even half
of the bill!

And that, boys and girls, journalists and college professors,
is how our tax system works. The people who pay the highest
taxes get the most benefit from a tax reduction. Tax them too
much, attack them for being wealthy, and they just may not
show up anymore. In fact, they might start drinking overseas
where the atmosphere is somewhat friendlier.

Sadly, this plan was just endorsed by the voting public on 6 November.

 

[newbury]

One of the worst problems with AMT is that it is not adjusted for inflation automatically.

Congrass has to add a patch.

IRS Announces 2012 Inflation Adjustments, Once Again Highlighting the Need for Another Alternative Minimum Tax