This page has been archived and commenting is disabled.

IRS to “Back-Value” Heinous AMT to 2012?

Bruce Krasting's picture




 

 

The Wall Street Journal reports this morning that Obama is going to ask for $1.6T in new taxes when he speaks on Friday. The only way that this sized tax increase could be accomplished is if the AMT tax is indexed to inflation and hits tens of millions of of additional taxpayers.

 

 

I have warned readers about the possibility that the AMT tax is going to go mainstream in 2013 here and here. Yesterday, the IRS came out with its own warning.

 

 

In 2012, about 4m taxpayers will get stuck paying the AMT tax. As the WSJ headline suggests, that number could go to 33m in 2013. That’s a massive increase; it will cause all sorts of problems. From the IRS letter to Senator Hatch re the AMT:

 

If there is no AMT patch enacted by the end of the year, the IRS would be forced to operate the 2013 tax filing season based on the expiration of the AMT patch. There would be serious repercussions for taxpayers.

 

 

The changes to the AMT exemption amount and the special tax credit ordering rules could affect more than 60 million taxpayers - nearly half of all individual income tax filers.

(Note: Even if you do not owe AMT, you have to fill out and file the AMT forms.)

 

About 28 million taxpayers would be faced with a very large, unexpected tax liability for the current tax year (2012).

(Note: The AMT patch actually expired in 2011; a one-year exemption was granted, but the exemption is not effective if not re-patched. This was a legislative “time bomb” that was included in the deal that created the fiscal-cliff (debt ceiling deal).

 

Okay, got that? The AMT is a disaster. It will force 60m people to confront a very complicated new set of tax forms (I know, I have paid AMT for years). It will be retroactive. It will cause 30m people fits when they realize they will have to pay out of pocket or get a much smaller refund for 2012.

 

But, there is another side to the AMT. It does exactly what everyone says is needed.

 

-It raises a ton of revenue; $1Tn over ten-years. (More than the Bush tax on the +250K folks)

 

-It eliminates all deductions for high-income earners. (The mortgage tax deduction is carved out however).

 

-It broadens the base.

 

-Allowing the AMT patch to elapse does not increase tax rates; it establishes a minimum tax rate (currently 28%). This would allow Republicans to claim that they successfully fought off an increase in marginal tax rates. Democrats would be able to say they increased taxes on the rich.

 

 

I think the AMT tax is a conundrum that has to be fixed. It is the most heinous aspect of the fiscal cliff. I say that because it is the only tax related to the fiscal cliff that has negative implications for 2012 (everything else is forward looking). Can Congress fix the problems with AMT? Sure they can. There are dozens of options. But Congress must act to fix the problem, they simply can’t “do nothing” as has been suggest by some Democrats.

 

I was not aware that the AMT had retroactive tax consequences for 2012. That it does, is a game changer. If we go down the road towards no compromise, and AMT becomes a reality for all taxpayers, the consequences of the fiscal cliff will be much larger than has been discussed in the press. Taxpayers would be crushed in 2013 if there is no action. Not only would most workers face much higher taxes for 2013, they would also get hit with much higher tax liabilities when they sit down and calculate what they owe for 2012. This double whack to the incomes of tens of millions of people would cause a recession far more severe than the one that CBO thinks might happen (small drop in GDP in 1st half 2013).

 

As a ten-plus year payer of the AMT, I say to all, the AMT is truly a dreaded tax. If allowed to expand, it will wreck many taxpayers’ plans on how they should live and work:

 

-Childcare costs would no longer be deductible. (Don’t have that child)

 

-Charitable contributions would not be deductible. (Don’t give money to your Church or any other worthwhile charity)

 

-Real estate taxes would no longer be deductible. (Don’t buy a house, it will be much cheaper to rent than buy on an after-tax basis.)

 

-State income taxes paid would no longer be deductible. (Move out of California, New York and Illinois as fast as you can.)

 

 

I’m one of the 4m people who has been stuck with this tax for the past decade. I’m praying for relief. I want the AMT abolished. But, for the life of me, I can’t see how that can happen. If there were a compromise on the fiscal cliff that resulted in the +250K crowd getting their marginal tax rate increased from 35% to 39.5% (the Obama plan) then I would end up paying LESS taxes then if I was subject the current AMT.

(Note: I live in a high income tax state, and pay high property taxes. I would be much better off with those deductions than without, even if the marginal tax rate is increased)

 

So they can’t do that. Guys like me can’t be getting a tax break as a result of the fiscal cliff. That outcome would be a complete joke (I would love it). This argues in favor of making the AMT permanent (the 2012 look-back could be easily patched).

 

I say again, AMT is a heinous tax, but it looks like it is going to become a reality anyway. The IRS has said that there will be big problems if AMT is allowed to impact large numbers of taxpayers. But without a minimum tax rate, revenues would fall (me). If AMT is expanded, the 30 odd million that pay the price ,will just hate the outcome. Get ready.

 

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Thu, 11/15/2012 - 02:35 | 2983212 malek
malek's picture

 Even if you do not owe AMT, you have to fill out and file the AMT forms.

1. I use Turbo Tax which handles that in one swipe with the other tax forms.

2. AMT very broadly speaking sets a federal minimum tax rate of about 17%, with very few exemptions/deductions allowed.
Unless you have very large deductions or your income consists mainly of long-term capital gains taxed at 15%, you will not get hit.

Wed, 11/14/2012 - 16:36 | 2981370 hardcleareye
hardcleareye's picture
AMT Exemption Amounts for 2011

Legislated as part of the 2010 Tax Relief Act:

  • $48,450 for single and head of household filers,
  • $74,450 for married people filing jointly and for qualifying widows or widowers, and
  • $37,225 for married people filing separately.

 

AMT Exemption Amounts for 2012

The alternative minimum tax exemption amounts for 2012 are scheduled to revert to the following levels:

  • $33,750 for single and head of household filers,
  • $45,000 for married people filing jointly and for qualifying widows or widowers, and
  • $22,500 for married people filing separately.

Source: Code Section 55(d)(1). Lower exemption levels mean that more taxpayers will be subject to the alternative minimum tax calculations.

http://taxes.about.com/od/1040/a/minimum_tax.htm

 

Wed, 11/14/2012 - 15:53 | 2981135 Sun and Moon
Sun and Moon's picture

-Charitable contributions would not be deductible. (Don’t give money to your Church or any other worthwhile charity)

You are a liar, Bruce! Why do you keep claiming that the AMT disallows charitable deductions? Here is an article that explains how charitable contributions reduce your AMT:

http://bucks.blogs.nytimes.com/2010/12/22/minimizing-a-m-t-through-chari...

If you actually made any charitable contributions, you would know this.

Wed, 11/14/2012 - 15:36 | 2981041 MFLTucson
MFLTucson's picture

All the crap of nthe country that pay no taxes voted to take your money away, how does it feel?  I hope Texas leaves this country, I would move there in a second to get away from this clown.

 

Wed, 11/14/2012 - 15:23 | 2980979 whotookmyalias
whotookmyalias's picture

I keep telling all my liberal friends, just because something is not important to them doesn't matter because someday the govt will come for something that is important to them.  The get all glossy eyed and make a comment about Big Bird.

Wed, 11/14/2012 - 15:04 | 2980884 Big Ben
Big Ben's picture

If O wants tax increases, here are some that would tend to hit blue states more than red states:

1. Eliminate the deduction for state taxes. Blue states tend to have higher state taxes.

2. Eliminate the mortgage interest deduction. Blue states tend to have higher home prices.

3. Eliminate the tax exemption on the sale of a home.

4. Tax the interest from muni bonds. Muni bonds are favored by the rich. But blue states like California tend to have higher debt levels.

5. Eliminate the deferred compensation loophole. This allows lots of corporate executives to pay virtually nothing in income taxes.

6. Put a 99% tax on gains from stock options and stock grants. This and #5 would really hit Silicon Valley.

 

 

Wed, 11/14/2012 - 14:53 | 2980833 onlooker
onlooker's picture

 

If the large corporations like GE pay a fair share, the tax income would be greatly enhanced. Given that the large corporations have the lobby money and ex-government employees and that the Unions have their jobs at large corporations has resulted in favorable tax escapes for large corporations. Given that the small business furnishes the majority of the jobs but do not have the unions or lobby money----- it is obvious where the tax responsibility will fall. This is not a flaw just from the Obama administration, but several in the past.

 

If this was discussed in this last election, I missed it.

Wed, 11/14/2012 - 14:38 | 2980759 Cow
Cow's picture

There's always a lot of talk about how to raise revenues for the federal government.

There's very little talk about why they need/deserve more.

Wed, 11/14/2012 - 14:53 | 2980825 BKbroiler
BKbroiler's picture

well if the WSJ says it then it must be true....

Wed, 11/14/2012 - 13:58 | 2980574 Zero Govt
Zero Govt's picture

"I want the AMT abolished. But, for the life of me, I can’t see how that can happen.."

Bruce expresses how wonderous and empowering the democratic system is.

There is a way to avoid AMT...

Stop Paying Tax ...it's your money, not theirs to thieve as they like

tell the Sheriff of Nottoingham (taxman) he's not Robin Hood, he's robbin you

Wed, 11/14/2012 - 14:52 | 2980820 Beam Me Up Scotty
Beam Me Up Scotty's picture

Stop paying tax.  And then what, go to jail?  I guess you could just quit working, thats one way to stop paying most of your taxes.  It sure is good government policy to give people incentives to stop working isn't it.  What a bona fide mess this all is.

Wed, 11/14/2012 - 15:01 | 2980869 BKbroiler
BKbroiler's picture

Welcome to the new intelligentsia at ZeroHedge.  Who needs logic when you can spew gems like "stop paying tax" and have morons agree with you?

Wed, 11/14/2012 - 15:21 | 2980931 Zero Govt
Zero Govt's picture

the morons are the sheeple that just sit there a take it like stuffed turkeys ...the Boston Tea Party (a Tax Revolt) kicked off on a lot less

the thieving (taxing) gets ever worse, the country gets ever worse and the Govt gets ever worse. It's a uber-easy correlation to follow.. it'll be because the unproductive gangsters of and behind Govt are wrecking the country by sapping the productive people (it happens over and over through history, do your research)

Govt is Anarchy, a small group of thieves running riot across society... you gotta be a moron to fund it a man with a brain and a backbone to stand up. Choose your personality

Wed, 11/14/2012 - 16:07 | 2981210 bunnyswanson
bunnyswanson's picture

http://www.youtube.com/watch?v=PZx2tUCB9t8&lc=hTRc9EzT-y-fyftWG0JRbL6L6jAu48OwGl2hcQA1ECs&lch=email_reply&feature=em-comment_reply_received

 

The media is the problem.  You cannot expect brainwashed people to realize they are being scammed when the Town Crier is telling them otherwise.  Every message being delivered is skewed to paint a picture of deception.  Citizens should demand media that is not conflicted with private hidden agendas.

Thankfully we have the internet - for now.

Wed, 11/14/2012 - 13:55 | 2980555 DOT
DOT's picture

You may want to visit the ever helpful IRS so that a plan can be made to account for this year's tax payments:

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Alternati...

 

Just Kiddin'     Don't waste you time unless you forgot to file 2011

Wed, 11/14/2012 - 13:48 | 2980516 crzyhun
crzyhun's picture

The people have spoken/chosen. And they must be punished!  Ed Koch.

Wed, 11/14/2012 - 13:31 | 2980400 ItsDanger
ItsDanger's picture

I thought Obama's slogan was Forward not Reto-active?

Wed, 11/14/2012 - 20:50 | 2980583 Zero Govt
Zero Govt's picture

he's a parasitical thief (socialist) spare no thought for his window dressing

Wed, 11/14/2012 - 13:29 | 2980390 tlnzz
tlnzz's picture

Tax the rich bitches!  (sarc).

Wed, 11/14/2012 - 14:00 | 2980580 Zero Govt
Zero Govt's picture

not so much the rich but anything that moves

Wed, 11/14/2012 - 13:28 | 2980379 Downtoolong
Downtoolong's picture

It's all  so simple.  If you've got money saved we want it, we need it, and we will come up with more reasons to rationalize and justify taking it from you than you can possibly imagine. By we, I mean the government, and the uber wealthy, who have more money than they know what to do with anyway, but, regretfully not enough to settle all accounts. 

My view of investing has shifted radically in the last few years. It's not so much about risk and return anymore. It's about investing in things that those we people can't know about or get their hands on easily. 

Wed, 11/14/2012 - 16:51 | 2981446 azzhatter
azzhatter's picture

they use all the right slogans and buzzwords- "fair share"- who can argue with fair?  "balanced approach"- how do you argue with that? "can't hurt the middle class"- all the while ass raping them with fees and other hidden taxes like obamacare. Straight out Saul's playbook, slide the big cock in and don't even let them feel it.

 

Fuck You Bernanke and Fuck You Potus

Wed, 11/14/2012 - 13:20 | 2980327 Muppet
Muppet's picture

Expanding AMT okay by me.... already paying it.

Wed, 11/14/2012 - 14:10 | 2980624 Bananamerican
Bananamerican's picture

this god-damn wastral government is a proven, piss-poor steward of "the People's" money...

give them LESS to play with, i say

Wed, 11/14/2012 - 14:03 | 2980592 Zero Govt
Zero Govt's picture

you chose your name well

Wed, 11/14/2012 - 13:19 | 2980314 ImnotPOTUS
ImnotPOTUS's picture

When you exercise & sell incentive stock options in the same year, you'll be subject to the regular tax on the income but not the AMT. However, if you exercise but not sell, the value of the exercised options because income for AMT purposes.

Faceplant to ZERO. This is gonna be some fun.

Wed, 11/14/2012 - 13:08 | 2980258 Roandavid
Roandavid's picture

This is a good plan if you ask me.

The mortgage deduction should be thrown back in.

Why should middle Americans have to subsidize upper income people's housing.

Wed, 11/14/2012 - 13:06 | 2980251 Augustus
Augustus's picture

The AMT does somewhat create a flat tax.  However, the way it does it is unfair.

The Pols crow about how they have stimulated XXX or supported education by giving tax credits.  Those don't apply to paying the AMT and most of the credits cannot be carried forward.  Elimination of deductions for property taxes and child care are pretty sneakey.  Of course, the deductions for interest and property taxes are built into the landlord's calculation of reasonable rent so the tennents get the advantage indirectly.

I paid the tuition bills for the children.  Tuition tax credits are not allowed under AMT.  It still gripes my butt.

The real deal is that if you actually make enough money on a personal level to spend or invest to earn the promised and advertised credits in many forms, the income levels of the AMT will take them back.

Wed, 11/14/2012 - 15:15 | 2980933 MachoMan
MachoMan's picture

Business deductions are separate and apart from individual consumer deductions...  elimination of the home interest deduction (and other deductions) only applies to the latter... 

Wed, 11/14/2012 - 13:03 | 2980235 Gordon Freeman
Gordon Freeman's picture

I, too, have paid the AMT for years, and it is hardly a "disaster"--I hope the IRS does exactly what they say.  Broadening the tax base is the only thing that makes sense.

There is not even close to enough revenue at the top--much as the non-taxpaying public would like there to be...

Thu, 11/15/2012 - 03:32 | 2983248 Moe Howard
Moe Howard's picture

Hopefully, your taxes will double next year, and I hope they grab your "retirement" accounts as well. After all, Israel really does have to replace those hellfires it shot off.

Wed, 11/14/2012 - 16:53 | 2981452 azzhatter
azzhatter's picture

they want more money to spend not to reduce deficit

Wed, 11/14/2012 - 13:57 | 2980568 Beam Me Up Scotty
Beam Me Up Scotty's picture

"I hope the IRS does exactly what they say.  Broadening the tax base is the only thing that makes sense."

Makes sense for what?  There won't be any deficit reduction, they will just increase spending.  If you think their so called "spending cuts" with the cuts happening in outlying years will happen, you are delusional.  So why raise taxes then?  So the government can just waste even MORE?

Wed, 11/14/2012 - 15:32 | 2981017 ONO47
ONO47's picture

"Democracy is the theory that the common people know what they want, and deserve to get it good and hard."

                         H.L. Mencken

Maybe after they get it good and hard for a while, they will reconsider what kind of government they want.

 

 

Wed, 11/14/2012 - 13:00 | 2980220 goodrich4bk
goodrich4bk's picture

Everybody here is looking at the tax issue from the wrong perspective.  Yes, if I look at my taxes and they are going up, I will hate it.  But what happens when taxes for everybody go up?  These angry people start paying attention --- perhaps for the first time in their life --- to where the money is going!  They stop supporting endless wars, bank bailouts and unlimited medical care for 90 year old grandmas.

The reason why we are in so much debt is because Cheney was right --- deficits don't matter politically.  Why raise taxes and be blamed when you can just borrow the money, including the money needed to pay the 3% interest this year.  Deficits only matter one or two generations later, when we reach the state Greece is in. 

Going off the cliff, even with the AMT, is the right thing to do because it forces today's taxpayers to pay for the spending they seem to demand.  Anything else is immoral, period.

Wed, 11/14/2012 - 13:09 | 2980263 DOT
DOT's picture

Even the dog that has been kicked will return for its dinner.

Sheep will probably do likewise.

Wed, 11/14/2012 - 14:12 | 2980634 Bananamerican
Bananamerican's picture

sheep return to BE dinner

Wed, 11/14/2012 - 18:01 | 2981755 Implicit simplicit
Implicit simplicit's picture

Mutton to say about that except touche

Wed, 11/14/2012 - 13:00 | 2980192 falak pema
falak pema's picture

what france does yesterday the US does tomorrow...we are seeing this play out.

Its not easy to balance growth with debt and deficit reduction. If ONLY energy stays cheap and abundant! 

Ah Bakken...holy grail !

So we don't go over the fiscal cliff?  

Is Bruce now taking back his prior prediction?

Wed, 11/14/2012 - 12:44 | 2980141 Bagbalm
Bagbalm's picture

Brilliant - shear away the edge of the cliff.

Wed, 11/14/2012 - 12:59 | 2980212 Mercury
Mercury's picture

Exactly.  The "fiscal cliff" drama is just a distraction. We're already falling into a disaster.

A whole nation of football fans and almost no one can figure out that this bullshit is the just the "heroic" QB saying: Go long...and I'll fake it to you!

Wed, 11/14/2012 - 12:41 | 2980132 Bicycle Repairman
Bicycle Repairman's picture

That's right.  The AMT is a flat tax.  Of course the rate is higher than expected.  Oh, well.  No need to bother with all those nasty deductions.

Wed, 11/14/2012 - 12:51 | 2980123 Mercury
Mercury's picture

-It raises a ton of revenue; $1Tn over ten-years. (More than the Bush tax on the +250K folks)

It will raise a ton of revenue ONCE over one, maybe two years

After that people will start to change their behavior. They will hide more income, conduct more business on grey and black markets, barter more, make do with less and just plain not get out of bed in the morning. 

Wed, 11/14/2012 - 12:59 | 2980207 Bicycle Repairman
Bicycle Repairman's picture

The question of revenue raising versus the black market is an interesting one.  I suspect that some of the police state activities of the last 10 years are meant to deal with this very issue. 

The government was going it merry way in the late 1970s with inflation increasing taxes automatically.  Then the American people started turning to the underground economy in a big way. The possibility of the underground economy becoming an entrenched part of USA culture (see the Mediterranean countries) finally forced the government to clean up their act. 

They are better prepared this time.

Wed, 11/14/2012 - 18:09 | 2981793 Implicit simplicit
Implicit simplicit's picture

Eventually they will push for a purely digital monetary system for tracking and tax enforcement. This is when bartering and pm exchanges will become more rampant.

Wed, 11/14/2012 - 13:04 | 2980239 Mercury
Mercury's picture

Perhaps but their preparedness and enforcements will further detract from GDP. As history as clearly demonstrated, you can rob people blind but you can't will economic activity into existence.

Wed, 11/14/2012 - 13:12 | 2980274 Bicycle Repairman
Bicycle Repairman's picture

You may be right.

But I think that "they" feel they will have the right combination of motivational tools.  And I expect they'll try to use them all.  This will take a number of years to prove out one way or another and people may be surprised at the invasiveness of the methods employed.

Wed, 11/14/2012 - 14:38 | 2980756 Mercury
Mercury's picture

Technology is now pervasive enough that, like everything else, behavior will evolve and consequences will manifest themselves much more quickly than they would have 10, 20 or 50 years ago. Behavior has evolved so quickly around QE for instance (less effective each time) that we now have a pretty much "drug resistant" market. TS will HTF a lot sooner than you may think. 

Wed, 11/14/2012 - 16:08 | 2981201 Radical Marijuana
Radical Marijuana's picture

We now have a pretty much "drug resistant" market to the spreading mad sheeple diseases, which were caused by gradually adapting to being forced to accept more fraudulence! Americans were systematically driven insane due to the prolonged history of runaway financial fraud. Of course, I raise this point because of the handle on the post above, originally made by "Madcow."

Madcow disease was made significant by turning cows into cannibals.

Metaphorically, the same thing is happening to the American people!

Mad sheeple diseases are spreading through the wolf-people too ...

We are being forced to adapt to society to being controlled by bigger lies, backed up with more violence, which is driving everyone to become Mad! The only good "cure" is more radical truth, but the more likely result is for that runaway madness to become a fatal disease which finally kills the people that have it. Tragically, that will also include most of the wolf-people, as well as the sheeple, because they are not immune to their own corrosive lies. Rather, I will give Mark Twain credit for recording the observation that "the best liars believe their own lies."

Mad cow disease is a good metaphor to discribe what is going to happen throughout America, as that mutates and spreads, and weakens the resistance of the body politic, as the old-fashioned treatments work less well. Americans are becoming a "drug resistant" market for miracle cures.

I give Virchow credit for describing politics as being medicine writ large.

It is easy to find one metaphor, after another metaphor, there now ...

The cause was triumphs of financial fraud,

that everyone was then forced to accept!

The cure is way more radical truth, BUT,

that cure is not the one people will take.

Wed, 11/14/2012 - 15:40 | 2981067 Bicycle Repairman
Bicycle Repairman's picture

"TS will HTF a lot sooner than you may think."

They're ready to go full Soviet. 

Do NOT follow this link or you will be banned from the site!