Alternative Minimum Tax

annuity educationWith all the doom and gloom of the capital gains, “fiscal cliff”, and payroll tax increase chatter that will undoubtedly be the hot topic for the next few weeks, there is a hidden danger. The alternative minimum tax, or AMT.



The AMT is essentially a parallel tax in that excludes certain deductions — like state and local income taxes — for people making a certain income level each year. That means taxpayers in AMT brackets have to figure out which tax is more, the AMT or regular taxes — and then pay the higher amount. AMT rates currently range from 26 percent for singles to 28 percent for married couples.



The AMT was implemented in 1969 to ensure upper-income Americans paid their fair share of taxes.  Recently, the AMT has captured more middle income people because it was never indexed for inflation.  Millions of Americans could be subject to the AMT in their 2012 returns if Congress fails to reach a deal on the “fiscal cliff” before year-end. That’s because the AMT is currently scheduled to hit individuals making as little as $33,750 a year and joint filers making $45,000. If you fall into the $75,000 to $300,000 income bracket, you can likely forget about a refund unless a patch or fix is done by year’s end.



Obviously, this could have a really big impact on US consumer spending, with the average of $3,700 in taxes as a potential loss.

Yet, even if Congress resolves the “fiscal cliff”, Americans could still end up seeing a huge tax increase under the AMT. The AMT tax itself is part of negotiations over ways to increase government revenue that are needed to pay for the debt and all the new legislation that has passed. And Congress would need to act separately — putting in a so-called patch — to insure more people aren’t subject to it because of inflation.

Resolution to this complex tax is still up in the air.



Congressional Republicans have called for ending the AMT, while President Obama said on the campaign trail this past year, that he’d let it go and replace it with the so-called Buffett Tax, a higher tax rate on the very upper income levels.


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