AMT tax rate increase to slow growth! Complain to your congress person about the AMT Alternative Minimum Tax traps!

Updated 11-29-12: If middle-class tax rates rise to the rates that existed prior to the Bush-era tax cuts and there is no patch for the alternative minimum tax (AMT), the growth of real consumer spending could decline by 1.7 percentage points in 2013, the National Economic Council and the Council of Economic Advisers (CEA) said in a report released on Nov. 26. (The Middle-Class Tax Cuts’ Impact on Consumer Spending and Retailers) As a result of the potential “tax hikes,” the CEA estimated that consumers could spend some $200 billion less than they would have in 2013 solely because of higher taxes. In addition, the growth of real gross domestic product could slow by 1.4 percentage points, the report added. “If Congress does not act on the President’s plan to extend tax cuts for the middle-class, it will be risking one of the key contributors to growth and jobs in our economy at the most important time of the year for retail stores,” the report said. “If this hike in middle-class taxes were permanent, economic theory and recent experience says that nearly all of this rise in taxes would translate directly into reduced consumption,” it said. The report is available at whitehouse.gov/sites/default/files/uploads/consumer_report.pdf—————————-
The Alternative Minimum Tax A.M.T. needs to be fixed or most of the middle class will be trapped.
By Jeffrey Brooks, CPA, CFP, MBA for JBrooks Wealth Advisors, PC, a Professional CPA and CFP Firm jeff@jbrookswa.com 602-687-9900 x101 Please consult with your professional tax CPA regarding your specific circumstances!

The alternative minimum tax (AMT) is the most unfair tax since direct confiscation of assets. Quite simply, the AMT is a tax on your deductions. The Alternative Minimum Tax was originally enacted to make sure rich people with oil wells and other “rich people” investments pay a minimum amount of tax.

The tax works like this. First you complete your regular income tax return. Then you compute the AMT, starting with your taxable income and adding back, among other things, deductions that you claimed for regular tax purposes.
For example, in your regular tax return, you may deduct state and local income taxes that you paid. You may claim exemptions for yourself, your spouse, and your dependents.
Now, here is the news—the two surprise casualties of the AMT: For AMT purposes, you lose the “special exclusion” that removes most of the middle class from the Alternative Minimum Tax trap. The Alternative Minimum Tax says “sorry, the deductions you claimed on your regular income tax return for state and local taxes, and personal exemptions you claim for yourself and your dependents are not allowed”

Of course, lawmakers don’t call this loss of deductions a tax. But that’s exactly what it is, because for AMT purposes the deductions are denied, they totally disappear, and your payment to the government increases. For AMT purposes, you may not deduct your state and local taxes or the personal exemptions for yourself, your spouse, or your children.
Here’s why the two surprise casualties are news: Of all the preferences on all the AMT tax returns filed in 2010, the state and local income tax deductions and personal exemptions accounted for 76% of all the taxable line items and for 76% of the dollar amount subject to the AMT.

Is this unfair? Yes!!? Lawmakers give you a deduction for state income taxes on your regular tax return and then tax that deduction for AMT purposes.

What is also unfair is that year after year, Congress fails until the last minute to reinstate a “patch” to removes large numbers of middle class people from the Alternative Minimum Tax.

We prepare tax plans for clients and have to tell clients that although we show that you owe zero regular tax, you owe $10,000 due to Alternative Minimum Tax. We then have to say: “based on past experience, Congress always “fixes” the Alternative Minimum Tax problem for the middle class. However, we cannot guarantee it. Therefore, we cannot tell you to do this or that tax strategy because we are not sure whether Congress will fix the problem again this year.

I always perform tax planning for my clients with a close look at Alternative Minimum Tax!!

This sneaky tax can jump up and bite you when you least expect it. This is a tax without logic.

Please Complain to your congressional representatives. This is an election year, so your complaints carry more weight than usual. And with the Internet, complaining is easier than ever. Just go to www.house.gov or www.senate.gov and complain away.

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About Jeffrey Brooks

Jeffrey Brooks, CPA, CFP, MBA since 1976 has specialized in helping clients save significant taxes, help businesses increase their cash flow, revenues and profits while increasing their control and satisfaction. Jeff and his accounting firm sincerely cares about the happiness of his clients.

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