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IRS to “Back-Value” Heinous AMT to 2012?
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.
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Bruce,
Are you going to take your own advice?
I hear Switzerland is nice.
Alternative Minimum Tax
http://en.wikipedia.org/wiki/Alternative_Minimum_Tax
I had to go and look it up since there was no exaplanation of it for non-US citizens. I thought I'd save others the trouble.
If you are not a US citizen I suggest you ignore this article. If the weather is nice where you are go for a walk or something. If the weather is bad read a book. Life is too short to worry about the boneheaded schemes the US congress comes up with even if you are a US citizen, much less a furriner. Cheers.
In Commiefornia. the boneheaded public union controlled voters in this Left Coast banana republik voted yes on Prop 30 to tax the "rich" even more, despite being the 4th highest taxed State in the country. And best of all ,it's retroactive to 1/1/12 just like AMT. And bestest of all, the State Assembly and Senate now have a bulletproof 2/3 Dem majority.....led by Governor Moonbeam. They'll just keep coming. Prop 30 is just a taste.
I foresee a continued mass exodus of the CA productive in 2013 to anywhere but NY, NJ or Conn.....the top 3 taxers. An escape plan has recently become a hot topic around these parts.
http://www.scpr.org/blogs/education/2012/11/07/10974/prop-30-has-passed-how-do-you-pay-retroactive-taxe/
Citizenship is only one arm of the IRS hexapus, AMT can also apply to non-citizen US taxpayers.
thats what i just had to do
nebulous law, isnt it?
under what conditions is one subject to the alternative minimum tax?
Go here: http://www.irs.gov/taxtopics/tc556.html
and choose the link/links that apply to you.
Really a brilliant strategic manouver - strike millions when they are not expecting the hit.
i think the plan is to throw millions of people who are currently teetering on the edge into bankruptcy - by raising their taxes to impossible levels.
that will increase financial stress and make it easier for the banks to foreclose on their assets.
the AMT is brilliant - becuase its a "sneak attack" that very few are suspcting will not have prepared for.
you've got to hand it the the political leaders of the West - massive tax increases in the face of a deflationary depression are bold !!
i wish i could fast-forward 10 years into the future to see what the result will be -
Even the wolf-people are getting mad sheeple diseases.
Don't do the time machine fast forward, it's really depressing. The smell from the Obamaville tent cities in every major park is appalling. Commute time is hard to calculate since you never know when the HSA checknodes on the freeway on ramps will be active. Once they read your chip and see EVERYTHING about you the traffic isn't bad, $15 gas helps with that. Fortunately you invested in guns. gold, food and companies that make electronic security equipment so you do have a car to drive.
Hello! It's 2012! The AMT is a sneak attack? LOL. Anyone who get blindsided by the AMT in 2012 is a Darwin Award nominee.
Somewhat true, but every year the net gets bigger. The new fish suddenly realize that they are now viewed as rich and need to pay more taxes because of this new found "wealth".
That's right the net gets bigger. If your neighbor got caught last year, guess what? You're up this year.
The tax is oppressive, but, please, do not say you didn't see it coming. How many dots needed to be connected? Two?
I had this discussion a while back with some liberal minded people. "Tax the millionaires" they cried, "they deserve to pay more."
I don't think they understood my relatively simple response, "We are all millionaires now".
It appears to me that the AMT is one of those taxes that really makes a lot of sense if one needed the tax revenue streams AND knew the dollar will inflate into oblivion. Admittedly a bit long on the horizon, but be that as it may.
Regards,
Cooter
Anyone with a job, a car and 99 dollars in their pocket is 'rich' now, according to the political zeitgeist.
Sucks to be in the wealthy 53% who must dig deeper.
But hey, Israel needs to charge some replacement missiles to our national credit card.
pay dem taxes bitches....i need a new fone and some welfare and a tank or two...end this blew state slavery...
but not for me , i aints payen noe taxs
LONG Prisons. I'm gettin me a student loan for Tax Collector School.
Elections have consequences.
Watch closely.
This is just the beginning.
Cleptocracy = Idiocracy
The higher you tax the lower the asset value.
The higher you tax the bigger the black market grows.
The higher you tax the more businesss will close.
The higher you tax the fewer people will have a job to pay the higher tax.
Rinse and recycle
Elections between two reflections of the same big ass lie have dire consequences.
Elections don't mean DICK!
This shit has been setup to fail for several years now.
In other news, the IRS just might need all of those hollow-point rounds they've been stock-piling.
The elections simply decided the part to which each party needs to play in the government charade.
I've got some hollow point stocked just for them...
Molon Labe assholes!
Real estate is in the process of becoming an enormous albatross for most owners, especially those in the 99% class.
Real estate is in the process of becoming an enormous albatross for most owners, especially those in the 99% class.
Yup, I can envision fires spontaneously starting, insurance collected, and no rebuild. Just take the cash and hook it.
Damn shame they are forcing you to become a criminal, just to live.
Dare anyone here to tell me the end game goal of this is bringing our stds of living down even more, so we can level the global pay scales.
Bet Union members are exempt!!.
Should we apply at the plant in China that makes Apples?.
Sigh! {Dreams of seeing a few millions of the middle class massing on the Mall with pitchforks and torches}.