Friday, July 13, 2007
AMT - Satan's Tax Rule
All the way back in 1969, the supposed "wise-men" of our nation realized that "the rich" were getting away with not paying their fair share of taxes. So, they created a rule. This rule stated that people with a certain amount of income would be under a "different" law of taxes. And it was called . . . the AMT (Alternative Minimum Tax).
The AMT is a whole different set of rules on tax rates and deductions. The rich only paid their taxes using this new rule if the taxes from the AMT formula was more than the standard "every day" formula the rest of the masses used. Bottom line: if you paid using AMT, you paid more taxes (period).
In 1970, 19,000 of our highest-paid citizens in these United States, owed taxes using the AMT formula.
Now, fast-forward 2006 . . . 3.6 million citizens (of the 131 million taxpayers) will have to pay their taxes using the AMT formula.
Oh what? That didn't scare you? Okay, what about this. By the year 2010 (3 years from now) 31 million taxpayers will be paying higher taxes using the AMT formula. Yeah, that's right nearly 1 in every 4 taxpayers will be paying HIGHER taxes! That means that there is a 25% chance you will be paying the government 26% of each dollar you earn in 3 years.
And why is this happening? Because the "wise men" in 1969 forgot to tell the proceeding generations (I guess they just assumed that the other guys would have good sense about it -- cause really, it's so obvious) to adjust the AMT formula for inflation!
And here's the thing, the households that are most vulnerable to "the wealth tax formula" are today's middle class households: Married filing jointly, more than 3 children, interest deduction from a second mortgage, capital gains, high state or local taxes, incentive stock options . . . all of these are red flags for the IRS to demand that you try the AMT formula instead of the "standard formula" for your taxes.
And get this . . . it all begins when your household income exceeds $75,000. It gets worse, the exemptions and deductions that you usually take, gets phased out when the household income reaches $150,000. The exemptions and deductions are completely wiped out by the time a couple makes $382,000 a year.
Okay, I'm not really worried about the people that make over $382,000 a year (even if it's me -- cause really, you can survive on that type of income even if a quarter of your money is taken by the government.)
But starting with the people making $75,000 a year? That's just wrong.
Hey, don't believe me? Check out:
AMT Minimum Tax 101
Top 10 Things that Cause AMT Liability
The New Tax Trap
Beware: You're in the AMT Now
tax rules; AMT; Alternative Minimum Tax; middle class; Personal Finance; finances; money;
2014 UPDATE: On January 2, 2013 President Obama signed the American Taxpayer's Relief Act of 2012. Which permanently adjusts the AMT to keep up with inflation, so now it's annually indexed to keep pace with inflation. This helps a lot. But it still doesn't get people out of the crazy situation of paying AMT. If you are worried about AMT the IRS now has a helpful little AMT Assistant Tax Tool you can plug in your information to see if you may owe AMT instead of regular tax. I'm just glad someone figured out that ATRA needed to be in acted before the AMT got us all!