ALTERNATIVE MINIMUM TAX - THE "SILENT KILLER" TAX

ALTERNATIVE MINIMUM TAX - THE SILENT KILLER TAX..

Minimum tax is causing major headaches for an increasing number of my clients each year! Even IRS Taxpayer Advocate Olson called the alternative minimum tax "a time bomb on a short fuse." Originally intended to stop the wealthy from sheltering their income from taxes, the alternative minimum tax now hurts more middle-income families. Millions of taxpayers will fall into the parallel tax system this year. Congress developed the alternative minimum tax (AMT) after discovering in 1969 that a handful of very wealthy individuals had hidden all of their income from taxation. Since then, the tax has steadily seeped down to less affluent families. Families with many children, families that live in high-tax states and some people who exercise incentive stock options can get caught in its trap. The tax takes away most of the advantages built into the standard tax system, such as exemptions for children, deductions for state and local taxes and deductions for employee business expenses or legal fees.

In 2008 MORE AMT will be paid than regular income tax!! This isn't a problem with the IRS - It is a problem with our Congressmen spending our money!!!

The itemized deduction for income and property taxes, and the miscellaneous deduction for attorney fees and outside salesman expenses cause many of the problems. Because these are "politically incorrect" ("rich people") deductions they are taxed for alternative minimum even though they are deductible from regular income tax. When two outside salesman marry, they pay a terrible "marriage penalty." And, California's high income tax often triggers AMT on higher income taxpayers. AMT considers Southern California taxpayers politically incorrect because they have to earn more to be able to live here.

When someone wins a large lawsuit (for example: harassment) they may owe more income tax than than they actually receive after deducting attorney fees. The gross settlement is counted as income. But, the attorney fees are deductible as a miscellaneous deduction SUBJECT TO AMT. Several settlements have resulted in taxpayers winning a lawsuit and actually owing the IRS more than they received!! The IRS can get MORE THAN 100% of their proceeds!

Congress is unwilling to reduce the alternative minimum impact on you!!! AMT will continue to impact you more each year! Congress should at least raise the limits before AMT applies.

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