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Millions could face AMT issues

By Kay Bell ·
Thursday, December 13, 2012
Posted: 4 pm ET

The alternative minimum tax, commonly referred to as the AMT, is one part of the fiscal cliff that isn't getting a lot of widespread attention. It should.

Unless Congress acts soon to patch this parallel tax system, 60 million American taxpayers could be affected.

All those folks would have to at least fill out the extra AMT forms. About 28 million of them would have to pay the added tax.

The problem is that the AMT, created more than 40 years ago to ensure that wealthy taxpayers paid at least some tax, was not indexed for inflation. As taxpayer earnings have increased over the decades, more folks have hit the income level at which the AMT applies.

Rather than just adding a line to the AMT law saying that it would be indexed for inflation as in so many other tax-related laws, Congress has opted instead to patch the AMT each year or so.

The House and Senate essentially up the earnings threshold at which the AMT must be considered.

Lawmakers last did so in 2010 when they were fighting about the Bush-era tax cuts back then, the first time the laws were facing expiration. They patched the AMT back then for two years.

But here's the problem. Two years for Congress doesn't always mean two years in the future. That year, the AMT patch for 2010 hadn't been approved as the year was winding down. When Congress finally did OK the 2010 patch, barely in time for the coming tax-filing season, the members also approved an AMT patch for 2011.

So here we are with the 2012 calendar pages flipping by and no AMT patch for 2012 tax returns that must be filed next year.

We don't know what the AMT income exclusion levels will be, meaning we can't get an idea as to whether we might owe the Internal Revenue Service extra money when we file.

The uncertainty about the AMT also affects year-end tax moves. Some expenses that are deductible under the regular tax system aren't deductible when figuring an AMT bill. They include state and local income taxes, real estate taxes and miscellaneous itemized deductions.

If you're not going to be affected by the AMT, you can, for example, pay your property taxes in December, so you can deduct them on your itemized tax return. But if you will face the AMT, you won't get that deduction, so you can hold off and pay your property taxes by the 2013 due date.

The IRS also is affected. It has to wait for the AMT amounts for 2012 so it can reprogram its computers. And since that takes a while, it will delay processing of AMT-affected returns, possibly for months.

So thanks, Congress, for screwing around and possible screwing millions of taxpayers out of tax-saving moves now and tax dollars next filing season.

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December 17, 2012 at 8:42 pm

I've retired from a corporate financial but could not agree more with the comments I have just read. So how do we fix the incompetance that got us here? How do we get these elected people to write simple, straight forward and fair tax policies? Does anyone know an activist group in need of volunteers?

December 17, 2012 at 2:03 pm

Forget the blogger's tax the rich rhetoric and let's talk facts. As a CPA I have client that is a head of household and a single mother of three making $70K a year in the one of the most expensive areas of the country, the Bay Area. Without the AMT fix her taxes go up by $1,300. That is enough for politicians from both parties to get fired next election. They will fix this as always but the impact of delayed spending decisions is the ultimate fallout. My clients are holding onto their funds in fear that they will need them for AMT and that hurst the recovery big time.

December 17, 2012 at 1:57 pm

Pretty soon......taxpayers will not be able to AFFORD to pay taxes....THEN what???

December 17, 2012 at 12:46 pm

Actually Travis my husband and I make under $75,000 per year and with my calculations, it is likely we will be paying about $1,000 in AMT - I am not in the top 2% by any means. This wasn't Comcast's way of being biased, this was there way of once again showing how ridiculous our government is.

December 17, 2012 at 12:35 pm

Travis, unfortunately you don't have to be in the top 2% for AMT to affect your taxes. As a CPA, I have been projecting 2012 tax for clients since last February. A couple or family with two earners (W-2 or self-employed)can get hit with AMT with income well under $200,000.

It depends on the make-up of your return. Do you live in a state with high income tax? As pointed out in the article, for AMT you don't get to deduct taxes - that's real estate or state income tax. Are you an outside salesman who has to pay your own travel and promotional expense? Sorry, no deduction for AMT. Do you have large medical expenses? AMT has a higher threshold for medical - thus, less deduction and more tax.

Did you have to pay AMT in 2011? AMT will be much higher in 2012. One of my clients - a couple, 3 children, and moderately successful business - will pay $10,000 AMT in 2012. With the patch, their AMT will be $1,000. That is a huge hit for families not in the top 2% of taxpayers.

Many of these taxpayers are struggling every day to meet their debt obligations and to give their children a better way of life. They aren't sitting on piles of money and the additional tax will hit them hard. Then, on top of that, they have to face another large tax increase in 2013.

December 17, 2012 at 12:18 pm

Don't confuse "wealth" with "income". Most of those that will be affected are middle income families trying ot put their children through college and live in middle class homes. They are not "wealthy" by most people's deffinition.

December 17, 2012 at 12:15 pm

Would be nice to know, at least, an estimate of what income brackets will most likely be affected, by the AMT?

December 17, 2012 at 11:32 am

When Obama is done taking from the rich .Who will the government take it from next ? You and I ,and then our children .The rich will not pay the tax anyway .We will ,as they are the business men of America and will pass that cost down to us the consumers,that's you and I.Well, white or black have a good day,

December 17, 2012 at 10:08 am

And who are those 60 million Americans that could be affected? The wealthiest Americans. Way to be biased, Comcast.

December 17, 2012 at 9:35 am

What is "fair share" now and what will it be when the debt hits 20 trillion or 25 trillion? Paying off that level of indebtedness is going to require a lot of "patriotism." And, on the subject of patriotism, if it is deemed patriotic for Americans to continue to give THEIR money to the government, why is it not patriotic for that government to spend the money responsibly and wisely?