Q&A with David Greenwell
Alternative Minimum Tax changes provide taxpayers some stability
Q: Each year since 2001, Congress has scurried around at the last minute passing an amendment to the rules for determining the amount of the Alternative Minimum Tax (AMT) exemption an individual can utilize in determining his total tax liability. With the passage of The American Tax Relief Act of 2012 (passed in 2013) the AMT exemption, as increased for inflation, has been made permanent. What would have been the impact if this legislation had not been passed?
A: The total amount of taxes paid by individuals who are subject to AMT would have increased by as much as $10,000 or more for 2012. In addition, failure to pass this legislation would have increased the number of individuals who potentially would be subject to AMT by as many as 60 million taxpayers.
Q: Remind us about what AMT is and when it started.
A: The tax was enacted in 1969 to ensure the then-155 richest Americans couldn't avoid paying some tax. It requires people with higher incomes and more tax deductions to give up some deductions, including dependents, real estate taxes and state and local income taxes. Today, some 4 million taxpayers are subject to the tax, including half of filers who earn $75,000 to $100,000, and 81 percent of those who earn between $100,000 and $200,000.
Q: So now that the annual increase in the AMT exemption for inflation has been made permanent will taxpayers be able to plan better for AMT in the future?
A: Yes, the need to prepare estimates with and without the “patch” will no longer have to be performed by accountants as long as the current system stays in the tax code. However, there is a significant amount of support on both sides of the aisle to eliminate the AMT. President Obama has previously proposed to replace part of the AMT with the “Buffett Rule” as part of comprehensive tax reform. This proposed rule would ensure that taxpayers making more than $1 million would pay an effective tax rate of at least 30 percent.