Should I worry about AMT?
You may have heard of the "Alternative Minimum Tax" (AMT), dismissing it as only afflicting the rich. But beware, AMT (sometimes referred to as the "stealth tax" or "Alternative Minimum Torture") is a ticking time bomb.
Back in 1966, Congress noted with alarm that 155 taxpayers making over $200,000 had paid no income tax at all due to allowable, excessive deductions. So in 1969, Congress passed legislation to ensure that all high-income citizens paid at least some tax. AMT limits certain deductions above specific incomes so that any additional deductions result in no further tax reduction.
Since its original income parameters were not inflation-adjusted, AMT is beginning to affect millions of middle-income taxpayers. At an average inflation rate of 4 1/2 percent, that $200,000 income 37 years ago is equivalent to $1,019,372 today. AMT seems appropriate for such levels, but not for single taxpayers with 2003 taxable incomes as low as $40,250.
Estimates foretell a ten-fold jump in the number of taxpayers subjected to AMT between 2000 and 2010 (up from 1.3 million to 17 million)-for an average tax increase of 13 percent. The hardest hit will be those with incomes between $30,000 and $75,000 who pay heavy state taxes and have significant non-reimbursed employee business costs, such as temporary living expenses.
Accountant and lawyer groups, and the IRS's National Taxpayer Advocate, recommend its repeal. Congress came close once but was vetoed by President Clinton. With the nation's current deficit, AMT provides politically "safe" tax increases for the foreseeable future with no additional changes to tax code. While you're waiting for your W-2s to come in this month, you could help your future tax planning by urging your congressional representatives to address this issue.