Alternative minimum tax

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the alternative minimum tax ( AMT ) is the additional income tax imposed by the federal government of the United States that is required in addition to the initial income tax for certain individuals, companies, estates and trusts or special circumstances that enable a lower standard income tax payment. AMT is charged at almost the same rate at the adjusted amount of taxable income above a certain limit (also known as an exception). This exception is much higher than the exception of regular income taxes.

Regular taxable income is adjusted for certain items calculated differently for AMT, such as depreciation and medical expenses. No abatement is allowed for state tax or other itemized item in AMT revenue calculation. A taxpayer with an income above the exception that his regular Federal income tax under AMT must pay a higher AMT amount.

Its predecessor "minimum tax", enacted in 1969, imposes an additional tax on certain tax benefits for certain taxpayers. AMT is currently enacted in 1982 and limits the tax benefits of various deductions. On January 2, 2013, President Barack Obama signed the American Relief Taxpayer Act of 2012, which indexes for earnings inflation threshold due to being a tax subject.

Video Alternative minimum tax

AMT Basics

Every year the taxpayer must calculate and then pay more than the minimum alternative tax (AMT) or the regular tax. Effective for high-income people who deduct their tax positions from the day-to-day income tax, year-end consolidation of all taxable income is requested and submitted. This is then paid in arrears (from the normal salary income tax) minus the allowable deductions. For many taxpayers, the effective marginal tax rate is 0% (exception), 26% (low bracket), 28% (high bracket), 32.5% (low bracket with exhaust phase runs out), and 35% (high bracket with phase of exit release), with increased modified taxable income for AMT. As with any federal income tax, rates and exemptions vary by filing status. The lower rates and exclusions are phased out over a certain income level at 25% of AMT revenue. The lower rate applies to long-term capital gains (and qualified dividends).

* For earnings in the abolition of exceptions, the marginal tax rate effectively multiplied by 1.25, which changed 20% to 25%, changed 26% to 32.5%, and changed 28% to 35%.

In addition, companies with an average annual gross revenue of $ 7,500,000 or less for the previous three years are exempted from AMT, but only so long as they continue to meet these tests. Furthermore, the company was released from AMT during its first year as a company. Affiliated companies are treated as if they were a single company for all three exceptions ($ 40,000, $ 7.5 million, and first year).

As far as AMT exceeds the regular Federal income tax, future credits are provided that may offset future taxes as long as AMT does not apply in the coming year. However, this credit is limited: see more details in the "AMT credit on regular taxes" section.

The regular taxes used as a basis for calculating AMT can be found on the following tax line lines: Individual form 1040 Line 44, or Company Form 1120 Schedule J line 2 minus foreign tax credit.

Under AMT, no deductions are allowed for private exemption (other than AMT special exceptions, which are greater than personal exceptions except for high-income taxpayers), nor are standard deductions. State, local, and foreign taxes can not be deducted. However, most of the detailed cuts are at least partially valid. Other significant adjustments to revenue and deduction apply.

Individuals must file an IRS 6251 Form and the company must file Form 4626 if they have an AMT due. This form is also filed to claim credit for the previous year's AMT.

Other individual adjustments in AMT computing include:

• Different itemized pieces are not allowed. This includes all items subject to 2% "floor", such as employee business costs, tax preparation fees, etc.
• Reduced home mortgage interest is limited to interest on purchases of mortgage money for first and second residence.
• Medical costs may be deducted only if more than 10% of Adjusted Gross Income is compared, compared to 7.5% for ordinary taxes.
• Inclusion of bargaining elements from incentive stock options when executed and stocks are not sold within the same fiscal year, regardless of whether stock can be immediately sold.

Many AMT adjustments apply to businesses operated by individuals or companies. Adjustments tend to have the effect of delaying certain deductions or recognizing income faster. These adjustments include:

• The depreciation deduction shall be calculated using the straight-line method and a longer life than can be used for ordinary taxes. (See MACRS)
• Reductions for certain "preferences" are limited. This includes reductions related to:
  • circulation costs,
  • mining costs,
  • research and experiment costs,
  • the cost of intangible drilling, and
  • Certain amortization.
• Certain earnings must be recognized in advance, including:
  • long-term contracts and
  • installment sales.

Some other adjustments apply. Corporations are also subject to adjustments (up or down) for current adjusted earnings. In addition, the partner or shareholder part of AMT's earnings and adjustments flows to partners or shareholders of a partnership or company.

AMT reduced by foreign tax credits, limited by AMT income rather than ordinary taxable income. Specified business tax credit specified allowed.

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History

A predecessor of the "minimum tax" was enacted by the Tax Reform Act of 1969 and came into force in 1970. Treasury Secretary Joseph Barr insisted on enforcement with the announcement that 155 high-income households did not pay a penny from federal income taxes. Households have taken advantage of so many tax benefits and reductions that they have reduced their tax liability to zero. Congress responded by creating additional taxes on high-income households, equal to 10% of total tax preferences over $ 30,000 plus regular taxpayer liabilities.

An explanation of the 1969 Act drafted by the Joint Committee Staff of the Internal Revenue Committee explaining the reasons for AMT as follows:

Previous treatments do not impose restrictions on the amount of income that a person or company may incur from taxes as a result of various tax preferences. As a result, there is a large variation in the tax burden placed on individuals or companies with the same economic income, depending on the size of their preference income. In general, individual taxpayers or companies that receive most of their income from personal or manufacturing services are taxed at a relatively higher tax rate than others. On the other hand, individuals or companies that receive most of their income from such sources as capital gains or are in a position to benefit from net lease arrangements, from accelerated depreciation in real estate, from percentage depletion, or from other preferred taxes activities tend to pay relatively low taxes. In fact, many individuals with high incomes who can benefit from this provision pay lower effective tax rates than many individuals with modest incomes. In extreme cases, people enjoy huge economic income without paying taxes at all. This is true, for example, in the case of 154 returns in 1966 with adjusted gross revenues of $ 200,000 per annum (regardless of those with income exceptions that do not show the proposed return). Similarly, a large number of companies pay taxes altogether or taxes representing very low effective rates.

AMT has undergone several changes since 1969. The most significant of them, according to the Joint Committee on Taxation, took place under the Tax Laws of Taxation and the Fiscal Responsibility Act of the Reagan Year in 1982. The law changed AMT from additional taxes to current form: parallel tax system. The current AMT structure reflects the changes made by the law of 1982. But AMT's participation and revenue temporarily fell after the 1986 changes. The Congress made other significant but less significant changes to the law in 1978, 1982, and 1986.

Further significant changes occurred as a result of the Omnibus Acts Budget Reconciliation of 1990 and 1993, which increased the AMT rate to 24% from the previous 21% level and then to 26% and 28% for the reporting individual with revenues exceeding $ 175,000. Now, some taxpayers who do not have very high incomes or participate in various benefits and/or special tax activities will pay AMT.

"Patches" to tax rates and exceptions

Over the years since then, Congress has passed a one-year "patch" aimed at minimizing tax impact. While it is not automatically indexed for inflation until changes in legislation in early 2013, exceptions have been increased by the Congress many times. In addition, the tax rate was raised for effective individuals in 1991 and 1993, and the tax was limited to capital gains and qualifying dividends in 2003.

For fiscal year 2007, the patch was approved on December 20, 2007, but only after the IRS has designed the form for 2007. The IRS must reprogram its form to accommodate legal changes.

The tax and exemption rates increased are reflected in the following table:

The corporate tax rate remains 20% and the amount of his release remains $ 40,000 since the change in 1986.

The American Taxpayer Relief Act of 2012 sets the 2012 release amount to $ 78,750 for Married Filing Jointly and $ 50,600 for Single, and makes the amount of future liberation indexed for inflation.

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AMT Details

The minimum alternative tax (AMT) is charged on an alternative, more comprehensive measure of income than regular federal income taxes. Conceptually, it is enacted instead of, not next to, ordinary taxes.

AMT is charged if the provisional minimum tax exceeds the regular tax. The minimum temporary tax is the AMT rate of the tax of alternative minimum taxable income (AMTI) less the AMT foreign tax credit. The ordinary tax is the ordinary income tax deducted only by foreign and proprietary tax credits. In any year in which the regular tax exceeds the provisional minimum tax, credit (AMT Credit) is allowed against the regular tax as long as the taxpayer has paid AMT in the previous year. This credit should not reduce the regular tax under the minimum temporary tax.

The minimum alternative taxable rate is a regular taxable income, plus or minus certain adjustments, plus tax preference items, minus allowed allowances (incrementally).

Taxpayer and tariff

Individuals, corporations C, estates, and trusts are subject to AMT. Partnership companies and S are generally not subject to income tax or AMT, but, instead, pass on revenues and goods related to AMT computing to their partners and shareholders. Foreigners are subject to AMT only on their income that is effectively connected with US trade or business.

AMT levels vary by taxpayer type. During 2012, individuals, plantations, and trusts are subject to the same tax rates on long-term capital gains for regular taxes and AMT.

Exceptions

Redemption for private exclusion is not allowed. In contrast, all taxpayers are given deleted exceptions at higher income levels. See above for the number of points of exemption and termination. Due to gradual exemption, the actual marginal tax rate (1.25 * 26% = 32.5%) is higher for income above the termination point. Separation of married-filing-separately (MFS) does not stop when exceptions reach zero, either in 2009 or 2010. This is because MFS exemption is half of mutual exceptions, but removal is the full amount, so for MFS, filers the termination amount can be up to < i> twice amount of release, resulting in 'negative release'.

For example, using the 2009 figures, a filer with $ 358,800 income not only gets zero but also taxes on additional $ 35,475 that was never actually earned (see "Line 29 - Taxable Income Minimum Alternative "in 2009 Instructions for Form 6251 or" Line 28 - Alternative Minimum Income Tax "in the 2010 Directive for Form 6251). This prevents married couples from different revenues from benefiting by applying for a separate return so that the lower earner earns the benefit of the number of exceptions that will be removed if they apply jointly. When applying separately, any applicable pairs not only have their own exclusions removed, but are also taxed on the second release as well, assuming that another couple may claim that on their own separate MFS returns.

Small companies are freed from AMT. A small company is a company with average gross acceptance for the previous three years of $ 7.5 million or less. Once the company stops being a small company for AMT, it's never again a small company. This limit applies to all members of an affiliate group as if they are a single company.

Depreciation and other adjustments

All taxpayers claiming a reduction for depreciation should adjust the deductions in calculating AMT revenues by the amount of reductions allowed for AMT. For AMT purposes, depreciation is calculated on most assets under the straight-line method using the asset life class. When a taxpayer is required to recognize a gain or loss on the release of a depreciable asset (or pollution control facility), the gain or loss should be adjusted to reflect the amount of AMT depreciation rather than the amount of normal depreciation. This adjustment also applies to the additional amount deducted in the asset acquisition year. For more details on this calculation, see MACRS.

In addition, corporate taxpayers may be required to make adjustments to depreciation deductions in calculating the adjusted adjusted current earnings (ACE). The adjustment applies only to assets acquired prior to 1989.

Adjustments are also required for the following:

• Long-term contract: the taxpayer must use the percentage completion method for AMT.
• The cost of exploration and development of the mine should be capitalized and amortized over 10 years, not charged.
• Certain accelerated cuts associated with pollution control facilities are not allowed.
• The allowed credits for alcohol and biodiesel fuel are included in the revenue.

Adjustments for individuals

Individuals are not allowed certain deductions in calculating the AMT allowed for regular taxes. No deductions are allowed for personal exemptions or for standard deductions. Gradual cessation of the itemized item does not apply. No deductions are allowed for state, local, or foreign or property taxes. Such tax recovery is exempt from the AMTI. No abatement is allowed for most of the detailed cuts.

The deductible medical expenses for AMT are only limited to those exceeding 10% of adjusted gross income (this is not unique to AMT, it applies to regular income taxes as well).

Reduction of interest costs for individuals can be adjusted. Generally, interest paid on the debt used to acquire, build, or improve the primary residence or both individuals is not affected. This includes interest resulting from the refinancing of such debt. In addition, the deductible investment interest cost for AMT is limited to the adjustment of net investment income. Other non-business interests are generally not deductible to AMT.

Adjustments are also made to incentive stock options and shares received under the employee stock purchase plan. In both cases, the employee must recognize the revenue for the AMT objective on the bargaining element or compensation, the employer is awarded a deduction for this, and the employee has a basis in the stock received.

Circulation and research costs should be capitalized and amortized.

Earnings currently customized for companies

Corporations are required to make adjustments based on current earnings adjustments (ACE). Adjustment increases or decreases AMTI for 75% difference between ACE and AMTI. ACE AMTI is more customized for certain items. This includes further depreciation adjustments for most assets, adjustments to better reflect earnings and profits, costs rather than percentages of depletion, LIFO, charitable donations and certain other items.

Losses

Reduction in net operating losses is adjusted based on losses for AMTI.

Agricultural losses are limited for AMT purposes. Losses of passive activity are recalculated for AMT purposes based on revenue and abatement as recalculated for AMT. Certain adjustments apply with respect to agriculture and the rule of losing passive activity to inadequate taxpayers.

Tax Preferences

All taxpayers should re-add tax deduction in AMTI calculations. Tax Preferences include the following deductions:

• the percentage of depletion exceeds the base,
• deductions for an intangible drilling fee exceed the amount that should be allowed if the cost is capitalized and amortized, with adjustment,
• on the contrary, the tax-free interest on the bonds used to finance certain personal activities, including the mutual fund dividends of such interest,
• a certain depreciation on pre-1987 assets,
• 7% of the excluded profits on a particular small business share.

Taxpayers may choose an optional 10-year removal of some tax preference items in lieu of additional preferences.

Note that in previous years there were some other tax preference items related to the provisions that are now revoked.

Credit

Credits are allowed against AMT for certain specified foreign and business credit fees.

The limitation of the AMT foreign tax credit is determined based on AMTI rather than ordinary taxable income. Accordingly, all the above adjustments and tax preference items should be applied in calculating the limits of the AMT foreign tax credit.

AMT credits against regular taxes

After the taxpayer has paid AMT, credit is allowed against the ordinary tax in the coming years for AMT amount. Individual credit is generally limited to the amount of AMT generated by deferral items (eg incentive stock option exercises), compared to exceptions items (eg state and local taxes). This credit is limited so regular taxes are not reduced below AMT for this year. Taxpayers may use a simplified method in which AMT's foreign tax credit limits are calculated proportionally to the ordinary tax rate of foreign tax credit. The IRS 8801 form is used to claim this credit.

Stock options

The alternative minimum tax may apply to individuals who use stock options. Under AMT rules, for incentive stock options during training, "bid elements" or "spread price" (the difference between strike prices and fair market value) are treated as AMT adjustments, and therefore need to be added to AMT calculations even though there is no income tax matures that are due in practice. Conversely, under the regular tax rules, the capital gains tax is not paid until the actual stock is sold. For example, if someone runs 10,000 shares of Nortel stock options for $ 7 when stock prices are at $ 87, the bargaining element is $ 80 per share or $ 800,000. Without selling shares, the stock price drops to $ 7. Although the real profit is $ 0, the $ 800,000 bargaining element is still an AMT adjustment, and the taxpayer owes about $ 200,000 in AMT.

AMT is designed to prevent people from using loopholes in tax laws to avoid taxes. However, the inclusion of unrealized gains on stock incentive options imposes difficulties for people who can not come with cash to pay taxes on unrealized gains. As a result, Congress has taken action to modify AMT on incentive stock options. In 2000 and 2001, people exercised stock incentive options and held shares, hoping to pay long-term capital gains taxes rather than short-term capital gains taxes. Many of these people are forced to pay AMT for this income, and by the end of the year, the stock is no longer proportional to the minimum amount of alternative taxes, forcing some individuals to go bankrupt. In the Nortel example given above, the individual will receive credit for the AMT paid when the individual finally sells Nortel shares. However, given the amount of residual AMT recalculated annually, the credit is finally received in most cases less than originally paid.

Share options in non-public companies

In the above Nortel example, the taxpayer may avoid the problem by selling enough inventory to cover AMT's liabilities immediately after exercising stock options. However, AMT also applies to stock options in pre-IPO companies or private companies: in such cases the IRS calculates the "fair market value" of shares based on information provided by the company, and therefore can treat the stock as a significant value even though the employee may can not sell (either because there is no market, or because of legal restrictions such as lock-up period). In such a case, it may be highly unlikely for an employee to use the option unless he has enough money to pay for AMT.

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AMT growth

Although AMT was originally authorized to target 155 high-income households, it now affects millions of families each year. The number of households paying taxes has increased significantly in the last decade: In 1997, for example, 605,000 taxpayers paid AMT; in 2008, the number of affected taxpayers jumped to 3.9 million, or about 4% of individual taxpayers. A total of 27% of households paying AMT in 2008 have adjusted gross income of $ 200,000 or less.

The main reason for AMT growth is the fact that the release of AMT, unlike regular income tax items, is not indexed to inflation before 2013. This means that the income threshold does not follow the cost of living. As a result, taxes have affected the increase in the number of households each year, because the income of workers is adjusted for inflation and exceeds the level of eligibility of AMT. Although not indexed for inflation, Congress often passes short-term increases in the number of deliveries. The Tax Policy Center (a research group) estimates that if AMT has been indexed into inflation in 1985, and if Bush's tax cuts have not been enacted, only 300,000 taxpayers - instead of those projected 27 million - will be taxed in 2010. President Barack Obama put indexing AMT into inflation in his FY2011 budget proposal, which did not pass. AMT raised $ 26 billion from $ 1.031 billion in total individual income taxes in 2008.

Another important reason for the recent expansion of AMT is the effect of Bush's 2001-2006 tax cuts. Tax deductions reduce the marginal tax rate for all income tax registers without making changes in accordance with the AMT tariff. Lower tax liabilities trigger AMT eligibility for many households. Economists often refer to this as a "take-back effect" of Bush's tax cuts.

As AMT has grown, the inequality created by the tax structure becomes more apparent. Taxpayers are not permitted to withhold state and local taxes in calculating their AMT obligations; As a result, taxpayers residing in the state with high income tax rates are up to 7 times more likely to pay AMT than those living in the state with lower income tax rates. Likewise, taxpayers are not allowed to deduct personal exemptions in calculating their AMT obligations; As a result, taxpayers with large families - and especially families with 3 or more children - are more likely to pay AMT than smaller families.

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Opinion on AMT

In recent years, AMT has gained increasing attention.

The AMT level has not changed at the same time as the regular income tax rate. A tax cut authorized in 2001 lowered the regular tax rate, but did not lower the AMT rate. As a result, certain people are affected by AMT that is not the intended target of the law. People with large discounts, especially those living in states or cities with high income tax rates, or those with unqualified mortgage interest rates, are most affected. AMT also has the potential to impose taxes on families with large numbers of dependents (usually children), although in recent years, Congress has acted to restrain the reduction of dependents, especially children, from triggering AMT.

Because AMT is not indexed into inflation until 2013, and due to recent tax cuts, more and more middle income taxpayers have found themselves subject to this tax. Lack of indexing creates a creep bracket. Recent tax cuts in ordinary taxes have the effect of causing many taxpayers to pay a certain amount of AMT, reducing or eliminating the benefits of regular tariff reductions. (In all such cases, however, the overall tax debt will not increase.)

In 2006, the IRS National Taxpayer Statement report highlighted that AMT is the most serious problem with the tax code. Advocates noted that AMT penalizes taxpayers for having children or living in a high-tax state and that the complexity of AMT causes most taxpayers owed to AMT to be unaware of it until preparing for their return or being notified by the IRS. A brief report issued by the Congressional Budget Office (CBO) (No. 4, 15 April 2004), concludes:

Over the coming decade, more and more taxpayers will be responsible for AMT. In 2010, if nothing has changed, one in five taxpayers will have AMT liabilities and almost every taxpayer married with income between $ 100,000 and $ 500,000 will owe an alternative tax. Rather than affecting only high-income taxpayers who will not pay taxes, AMT has expanded its reach to many high-end households. As more taxpayers bring in AMT, the pressure to reduce or eliminate taxes tends to increase.

However, the CBO rules state that it must use the current law in its analysis, and by the time the text above is written, the AMT threshold is set to expire in 2006 and reset to a much lower value. Critics of AMT argue that various features are deficient, though others retain some of these features:

• The AMT exceptions and the exemption threshold of the exemption exemption of AMT are not indexed for inflation so over time, the real value decreases and the taxpayer fraction subject to AMT increases. However, on January 1, 2013, AMT is now adjusted for inflation. This is known as the fiscal drag or creep bracket.
• AMT eliminates state and local tax cuts. (Various arguments have been made for and against such tax cuts.For example, an argument against abatement is that if taxes are seen as payments for government services, they should not be treated differently from other consumption.)
• AMT prohibits some of its foreign tax credits, creating multiple degrees of double taxation for more than 8 million Americans living abroad. Some simple income families owe AMT solely because of currency fluctuations.
• Businesses and individuals should double the amount of tax planning when considering whether to sell assets or start a business. They must first consider whether a particular course of action will increase their regular income tax and then also have to calculate whether alternative taxes will increase.
• Taxes are often owed in the year in which the implementation of ISO stock options occurs, even if no stocks are sold (which, for private or pre-IPO companies, may be because it is impossible to sell shares). Although many taxpayers believe that in such cases there is no actual income, the bargaining element of this exercise is considered income under the AMT system. In extreme cases, if the stock is private or the value falls, it may be impossible to realize the money demanded by AMT.

In 1986, when President Ronald Reagan and both sides on Capitol Hill approved a major change in the tax system, the law was subtly altered to lead to a series of entirely different cuts, which everyone gets, such as personal, state and tax exemptions local, standard deductions, certain expenses such as union dues and even some medical expenses for the severely ill. At the same time he deleted and revised some exotic investment pieces. A law for wealthy unpaid investors refocuses on families who have their homes in high-tax countries. - David Johnston, New York Times

Further shifts, involving many changes in definition and extensive reorganization, occurred with the 1986 Tax Reform Act.

Further criticism is that AMT does not even affect the intended target. Congress introduced AMT after it was found that 21 millionaires did not pay US income taxes in 1969 as a result of various deductions taken on their income tax returns. Since the marginal rate of people with a million dollars of income is 39.6% and AMT uses a rate of 26% or 28% on all revenues, it is unlikely millionaires will trip over AMT because their effective tax rate is already higher. Those who pay by AMT usually people earn about $ 200k- $ 500k.

Deciding whether someone is subject to AMT can be difficult. According to the IRS taxpayer advocate, determine whether someone owes AMT can request a 9 page instruction reading, and complete the 16-line worksheet and 55-line form.

Complexity

AMT is a tax of about 28% on adjusted gross income of more than $ 186,300 plus 26% of the amount less than $ 186,300 minus exceptions depending on the filing status after adding back in most of the deductions. However, the taxpayer must also perform all documents for regular tax returns and then all documents for Form 6251. Furthermore, affected taxpayers may have to calculate the AMT version of all overlaps because AMT transport may differ from ordinary transfer of taxes. Once the taxpayer is eligible for AMT, he may have to calculate the AMT version of the innate loss and AMT carryforward credits until they run out in the coming years. The definition of taxable income, deductible fees, and exclusions differs on Form 6251 from those in Form 1040.

The complexity of AMT paired with a history of last-minute annual patches that adjust law creates taxpayer uncertainty for taxpayers. Over the last ten years, Congress has been passing a one-year patch to reduce its negative impact, but they are usually past the end of the year. This makes it harder for taxpayers to determine their previous tax liabilities. In addition, since AMT is not indexed for inflation until 2013, the annual patch cost increases every year.

Taxpayer income

The absence of previous indexes from AMT is widely recognized across the political spectrum as a weakness. In 2005, the Brookings Center for Urban Tax Policy and the US Treasury Department estimated that about 15% of households with revenues between $ 75,000 and $ 100,000 had to pay AMT, up from only 2-3% in 2000, with an increased percentage of high incomes. The percentage will increase rapidly over the next few years if no changes are made, especially indexing inflation. Currently, households with incomes under $ 75,000 subject to AMT are only very rare (and thus most tax advisers do not recommend AMT computing for those households). However, it will change in just a few years, if AMT remains unexposed.

The average household income in the United States was $ 44,389 in 2005, and households earning more than $ 75,000 per year were the top share of household income. Since they are households generally required to calculate AMT (although only a small percentage have to pay), some argue that AMT still only touches the rich or upper middle class. However, some areas, such as Fairfax County, Virginia ($ 102,460), and some cities, such as San Jose, California ($ 76,354), have local median revenues that are much higher than the national median, and close to or exceed typical AMT thresholds.

The cost of living index is generally higher in such areas, leading to "middle class" families in the area having to pay AMT, while in poorer areas with lower living costs, only "rich locals" pay AMT. In other words, many people who pay AMT have an income that will place them among the rich when considering the United States as a whole, but who consider themselves "middle class" because of the cost of living in their area.

As early as the first Tax Reform study in 1984, arguments were made to eliminate state and local tax cuts:

Current state and local tax deductions apply to Federal subsidies for public services provided by state and local governments, such as public education, road building and repairs, and sanitation services. When the taxpayer obtains a service similar to a private purchase (for example, when the taxpayer pays for water or sewage services), no deductions are allowed for such expenditure. Allowing state and local tax deductions only allows taxpayers to finance personal consumption expenditures with pre-tax money.

Supporters of the removal of state and local tax cuts disappeared in the 1986 Tax Reform, but they won concessions by removing these cuts in AMT calculations. That, coupled with non-indexation of AMT, creates a slow retraction of the deductions for state and local income taxes.

The partial ban on foreign tax credits by AMT even harms low-income Americans and green card holders working abroad or otherwise paid in foreign currency. Particularly when the dollar falls worldwide, those working abroad see their earnings (when reported to the IRS in terms of US dollars) skyrocket, even if their actual income falls year-on-year, and even if their foreign tax obligations increase. They are actually taxed solely on exchange rate changes, from which they do not benefit because their household expenditures are all in foreign currency.

Avoiding AMT

AMT can be avoided by staying outside the $ 150,000 to $ 415,000 revenue range. For example, a taxpayer might better realize a $ 1 million capital gain in a year than divide it into two or three years.

For taxpayers who owe AMT, the IRA (Individual Retirement Account)/The contribution of eligible plans, charitable deductions and home mortgage interest (but not "hard money" interest on refinancing) is invaluable. They reduced their tax liability to the minimum minimum tentative effective tax rate of 32.5% or 35% (for those within the AMT exemption exemption range) plus the marginal rate of full state income tax. This may be slightly better than under the usual taxes.

Arguments against AMT cancellation

While many parties agree that AMT needs to be changed, some oppose direct retraction.

• A 2007 study by left-leaning think tanks showed that 90% of taxes would fall on households earning more than $ 100,000 per year, even if AMT was not adjusted for inflation until 2010.
• AMT can be changed so that it has little or no effect on those with low incomes.
• The decline in tax revenues from deprivation is relatively large. Losses are estimated at between $ 800 billion and $ 1.5 trillion in federal revenue over 10 years. According to the Washington Post, "In 2008, the cost would be much cheaper than revoking the regular income tax system rather than the alternative minimum tax, according to the Tax Policy Center, co-operated by the liberal Brookings Institution and Urban Institute." In 2007, an analysis in the New York Times stated that; (1) The annual fee for canceling AMT, and maintaining a regular income tax, will be $ 70 billion, while (2) The annual fee to get everyone to pay AMT, and cancel the regular income tax, will be a smaller amount of $ 63 billion.

AMT Reform

Policy analysts are divided on how best to overcome criticism of AMT. Len Burman and Greg Leiserson of The Tax Policy Center, a joint program of the Brookings Urban and Institutional Institute, have proposed a highly progressive neutral replacement for AMT. They suggested "the option would pull AMT and replace it with an additional tax of four percent of adjusted gross revenues above $ 100,000 for singles and $ 200,000 for couples.The threshold would be indexed for inflation after 2007." This plan, the authors argue, will share AMT's original goal - that is, to ensure a certain level of taxation for high-income people.

Other groups recommend to cancel AMT instead of trying to reform it. One such group, the Cato Institute, notes that:

• Many tax loopholes are designed to be handled by AMT since it was closed;
• AMT is not complicated and burdensome to taxpayers;
• Full retraction will leave Federal revenues as part of GDP of about 18%, its average rating in recent decades.

The right-leaning National Taxpayer Union also supports retraction. "It is very unfair for policymakers to promote certain social and fiscal ideas through exceptions, credits, and deductions, just to take this incentive when a taxpayer takes advantage of them too well."

The conservative-leaning tax body says that AMT can be effectively revoked simply by fixing shortcomings in the regular tax code. Economist Patrick Fleenor thinks so

usually an unjustifiable restriction on taxable income... which causes the AMT resistance to kick. If income is taxed comprehensively with the usual tax code, there will be no way to legally evade taxes, and not a taxpayer should file an AMT form even if the law is still in the book.

Some have proposed the abolition of regular taxes and modifying and indexing AMT. A proposal to the 2005 Presidential Advisory Council on Federal Tax Reforms advocated raising the release of AMT to $ 100,000 ($ 50,000 for singles) and indexing thereafter, applying the 25% rate, and allowing proper exclusion for income-generating activities, in addition to the revocation of the regular tax.

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References

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Further reading

Standard tax text

• Willis, Eugene, Hoffman, William H., Jr., et al. , Federal-Western Taxation , published annually (cited as Willis & Hoffman). The 2009 edition includes ISBN 978-0-324-66050-0 (student) and ISBN 978-0-324-66208-5 (instructor).
• Pratt, James W., Kulsrud, William N., et al. , Federal taxation , updated periodically (cited as Pratt & Kulsrud). ISBN 2010 edition 978-1-4240-6986-6.

The order of CBO issues

• KSM Short Report - Individual Minimum Tax Individual - January 2010

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External links

• IRS: Assistant AMT for Individuals (online software)

Source of the article : Wikipedia