Sat Jan 12, 2013, 06:23 PM
mfcorey1 (4,808 posts)
Need a "plain English" explanation of the Alternative Minimum Tax. Is it for the wealthy only?
Is it for the middle class also?
4 replies, 693 views
Need a "plain English" explanation of the Alternative Minimum Tax. Is it for the wealthy only? (Original post)
Response to mfcorey1 (Original post)
Sat Jan 12, 2013, 07:17 PM
MrSlayer (22,143 posts)
2. It's supposed to be for the rich only.
Say what you want about Nixon, he absolutely hated the idle rich and abhorred the idea that super rich people could get away with paying no taxes through deductions. Enter the minimum tax. It ensured that the dodgers would have to pay a certain amount no matter what. The problem is that it was never adjusted for inflation so it started creeping into middle class families. Obviously, what made you rich in 1969 is not what makes you rich now.
So, yes, it is supposed be for rich tax dodgers only and thanks to the inflation adjustment in the fiscal cliff deal, it will go back to doing what it was intended to do.
Here's a good, easy to follow explanation.
Response to mfcorey1 (Original post)
Sat Jan 12, 2013, 10:17 PM
rgbecker (2,467 posts)
3. Here's another quick read about the ATM
Everyone of these articles are quick to point out how many more people will fall into the ATM because of inflation. While this is true, I think one needs to realize that people who fall into this tax are doing so because they are benefiting from the many deductions, exemptions and loopholes that are built into the code to allow those making good money to avoid taxes that the lower income pay without thinking about it.
First look at the level of income that is required before you even have to think about it.
The 2012 exemption amounts are: (Keep in mind The overall median (50% have less, 50% have more income) personal income for all individuals over the age of 18 was $24,062)
Married taxpayers filing jointly:
Married filing separately:
Head of Household:
Basically, if you have income above these amount, you have income more than about 70% of the population.
Next step is to see if you are taking advantage of a lot of deductions and loopholes and if you are and are paying a marginal rate below about 26%, you are going to have to pay some more taxes.
Here is a list of loopholes and tax advantaged things listed that might be getting you tax breaks under the normal tax rates:
•Stock by exercising an incentive stock option and you did not dispose of the stock in the same year
•Tax exempt interest from private activity bonds
•Intangible drilling, circulation, research, experimental or mining costs
•Amortization of pollution-control facilities or depletion
•Income (or loss) from tax-shelter farm activities or passive activities
•Income from long-term contracts not figured using the percentage-of-completion method
•Interest paid on a home mortgage NOT used to buy, build or substantially improve your home
•Investment interest expense reported on Form 4952
•Net operating loss deduction
•Alternative minimum tax adjustments from an estate, trust, electing large partnership or cooperative
•Section 1202 exclusion
•Any general business credit in Part I on Form 3800
•Empowerment zone and renewal community employment credit
•Qualified electric vehicle credit
•Alternative fuel vehicle refueling property credit
•Credit for prior year minimum tax
So if you were not taking advantage of these breaks, you would be paying a higher tax rate. Since you are taking advantage of these various breaks, and you have an income equal to that of at least 70% of the country, you might have to pay at a higher rate...but never as high as if you didn't take any of the breaks.
I think the anti AMT talk is a bunch of upper middle class guys whinning about having to pay taxes like everyone else.
Response to rgbecker (Reply #3)
Sat Jan 12, 2013, 10:36 PM
DogPawsBiscuitsNGrav (408 posts)
4. 79 thousand per couple is considered rich?
I used to get irritated when our neighbors, who make about that much would brag all of the time about being "rich." We would snicker and think wow. If ya heard them talking on the phone and didn't know them you'd think they drove a Bentley and vacationed on their yacht. I had no idea 80 grand is the new rich now days. Guess the joke was on us.