javasaurus (![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png)
javasaurus) wrote2004-03-11 01:14 pm
javasaurus) wrote2004-03-11 01:14 pm
Alternate Minimum Tax -- Important!
As the winter slowly melts away and the flowers start to poke their heads up through the ground, as the chill and dark turns to warmth and light and songbirds return to fill the air with music, a young man cannot help but turn his thoughts to...
Taxes!
Yes, it's that time of year again, and I'm glad to say that BE and I have finally finished ours, except for producing the final copy. It'll go into the mail tomorrow, and wow, was this one hideous. In years past, I've never spent more than an hour on taxes. That was all the time it took. But last year we sold two houses, bought a house, got married, donated a car, etc. It didn't help that the 1098 (mortgage interest and points) form from the bank was off by a factor of 10. A new tax law on dividends worked to our benefit, but involved yet another form. Sigh. But it's done!
Important Info about the Alternate Minimum Tax
As I went through the taxes, I learned a bit about a tax law that has been on the books for about 30 years, but generally hasn't affected most people I know. It's called the Alternate Minimum Tax.
The AMT came about in the 70s when it was discovered that several people making lots of money were (legally) paying no taxes. Congress calmed the public by creating the AMT so that the rich could not hide completely behind certain types of tax shelters.
Unfortunately, the AMT did not include provisions for inflation, and what was "rich" in the early 70s is only middle-class now, and four times as many people are paying AMT than last year. The worst part is that the way the tax works, it is nearly impossible to guess whether it applies to you based on your income. It is expected that (unless Congress changes it), most people will be doing AMT instead of "normal" income tax within the next few years.
So how does it work? The AMT is set up as a completely different system for computing your taxes, and you are responsible for paying the larger of the regular tax or the AMT. The basic idea is that you get a fairly large exemption amount, and then pay a large percentage (something like 26%) on the rest. Here's the rub: a lot of Schedule A deductions don't apply.
The worksheet (and the actual form) are easy to fill out (if you've already finished your 1040 and schedule A), but take a bit of time. And finally, remember, you are responsible for the larger of the two taxes, and the IRS will know if you didn't get it right.
Taxes!
Yes, it's that time of year again, and I'm glad to say that BE and I have finally finished ours, except for producing the final copy. It'll go into the mail tomorrow, and wow, was this one hideous. In years past, I've never spent more than an hour on taxes. That was all the time it took. But last year we sold two houses, bought a house, got married, donated a car, etc. It didn't help that the 1098 (mortgage interest and points) form from the bank was off by a factor of 10. A new tax law on dividends worked to our benefit, but involved yet another form. Sigh. But it's done!
Important Info about the Alternate Minimum Tax
As I went through the taxes, I learned a bit about a tax law that has been on the books for about 30 years, but generally hasn't affected most people I know. It's called the Alternate Minimum Tax.
The AMT came about in the 70s when it was discovered that several people making lots of money were (legally) paying no taxes. Congress calmed the public by creating the AMT so that the rich could not hide completely behind certain types of tax shelters.
Unfortunately, the AMT did not include provisions for inflation, and what was "rich" in the early 70s is only middle-class now, and four times as many people are paying AMT than last year. The worst part is that the way the tax works, it is nearly impossible to guess whether it applies to you based on your income. It is expected that (unless Congress changes it), most people will be doing AMT instead of "normal" income tax within the next few years.
So how does it work? The AMT is set up as a completely different system for computing your taxes, and you are responsible for paying the larger of the regular tax or the AMT. The basic idea is that you get a fairly large exemption amount, and then pay a large percentage (something like 26%) on the rest. Here's the rub: a lot of Schedule A deductions don't apply.
The worksheet (and the actual form) are easy to fill out (if you've already finished your 1040 and schedule A), but take a bit of time. And finally, remember, you are responsible for the larger of the two taxes, and the IRS will know if you didn't get it right.
no subject
the other is the "death tax", which was frozen at $600,000 at a time when millionaires were rare. Now, with property values being what they are, your family could have bought a house for $78,000, died leaving it to you (either directly through a will, or indirectly by not having one), and you find the value of the house is now $600,001. That *1* dollar over 600,000 means you will likely owe the government the entire house, lock stock and barrel. if it was 599,999, you could keep it without owing a dime.
the AMT is also devestating when it comes to stock options. Some dot-com geeks had options vest into stock at a time when the price was high, and the value of the stock was reported as of December 31st.
However, between Dec 31 and April 15, the stock collapsed (as many did in early 2001), leaving them with nothing at all, and a HUGE bill because they owe the money via the AMT on the value of the stock at the end of the year.
Some of these geeks will be paying the Feds about $20,000 per year for the next 20 years, all on the value of stock that was essentially worthless by the time they got "the bill".
no subject