The Cliff and AMT - $4000 more in 2012 taxes?

[Browser]

I just read this eyepopping quote online regarding the impact on the Alternative Minimum Tax if we go over the cliff. Can someone explain the AMT to me and how a person making only $45K might end up paying $4K more tax in 2012 as a result? BTW, this is going to wreak havoc with your tax calculations this year, isn't it? Turbotax and HR Block are going to be issuing updates right up until April 15, so don't plan on filing any sooner this year.

A CBS report indicated that people with incomes of $45,000 filing as individuals may pay as much as $4,000 more in taxes than last year

[livesoft]

Your quoted text has nothing to do with AMT nor a Cliff.

As a citizen of the U.S. of A., you should be well-informed about the taxes you pay and how they work. So I can help you: A person making $45,000 probably doesn't pay any federal income taxes now if they contribute to their retirement plans and health care. They will pay a little more FICA tax ... maybe an extra $800 or less which is the same amount they were paying a couple years ago.

Your health care expenses may go up if your eyes have popped up from reading BS, so to save on health care costs, stop reading BS.

[The Wizard]

OP is confusing this year with next year as well.
Things are ALL SET for income earned in 2012...

[randomwalk]

OP is confusing this year with next year as well.
Things are ALL SET for income earned in 2012...

Not true. In several recent years, Congress passed the AMT fix at the very end of the year for the current tax year. They have yet to do so this year:

Congress hasn't passed that extension for this year. And with talks over avoiding the fiscal cliff stalled, it may not pass one. If it doesn't, the tax will hit almost 30 million additional households, and could hit some couples making as little as $45,000 and individuals making as little as $33,750, according to the IRS. Just four million households had to pay the tax in 2011.

http://online.wsj.com/article/SB1000142 ... 73492.html

Unless Congress passes an AMT exemption by the end of the year, "most taxpayers may not be able to file their 2012 tax returns until late March of 2013, or even later," acting IRS commissioner Steven Miller said in a letter to lawmakers this week. The retired IRS commissioner, Doug Shulman, warned at a recent conference of "real chaos" if that happens.

[midareff]

Your health care expenses may go up if your eyes have popped up from reading BS, so to save on health care costs, stop reading BS.

PRICELESS!

[chaz]

Your health care expenses may go up if your eyes have popped up from reading BS, so to save on health care costs, stop reading BS.

PRICELESS!

I agree - don't worry about things you can't control.

[rkhusky]

Unless Congress passes an AMT exemption by the end of the year, "most taxpayers may not be able to file their 2012 tax returns until late March of 2013, or even later," acting IRS commissioner Steven Miller said in a letter to lawmakers this week. The retired IRS commissioner, Doug Shulman, warned at a recent conference of "real chaos" if that happens.

Which is why I try to arrange things so I don't get a tax refund and have no incentive to file early.

I do wish the IRS would release Pub 15, so that I can start estimating my taxes for 2013. I also usually set up my mom's payroll system over Christmas break, but it appears that I will not be able to do so this year and will have to guide her through it over the phone once the IRS releases the brackets and rates.

[Browser]

Thanks randomwalk. I don't know what kind of handwaving other posters are doing and appreciate the info you provided.

[HueyLD]

I do wish the IRS would release Pub 15, so that I can start estimating my taxes for 2013. I also usually set up my mom's payroll system over Christmas break, but it appears that I will not be able to do so this year and will have to guide her through it over the phone once the IRS releases the brackets and rates.

Bloomberg reported recently that the IRS will issue withholding guidelines by 12/31.

[rkhusky]

I do wish the IRS would release Pub 15, so that I can start estimating my taxes for 2013. I also usually set up my mom's payroll system over Christmas break, but it appears that I will not be able to do so this year and will have to guide her through it over the phone once the IRS releases the brackets and rates.

Bloomberg reported recently that the IRS will issue withholding guidelines by 12/31.

That would work for me, since we are flying home on the 2nd.

[Sidney]

OP is confusing this year with next year as well.
Things are ALL SET for income earned in 2012...

Not true. In several recent years, Congress passed the AMT fix at the very end of the year for the current tax year. They have yet to do so this year:

Congress hasn't passed that extension for this year. And with talks over avoiding the fiscal cliff stalled, it may not pass one. If it doesn't, the tax will hit almost 30 million additional households, and could hit some couples making as little as $45,000 and individuals making as little as $33,750, according to the IRS. Just four million households had to pay the tax in 2011.

http://online.wsj.com/article/SB1000142 ... 73492.html

Unless Congress passes an AMT exemption by the end of the year, "most taxpayers may not be able to file their 2012 tax returns until late March of 2013, or even later," acting IRS commissioner Steven Miller said in a letter to lawmakers this week. The retired IRS commissioner, Doug Shulman, warned at a recent conference of "real chaos" if that happens.

absolutely not true that 2012 is set. Yes, there is a code that will be final at 12/31/12 11:59:59 but if nothing happens between now and then on 2012 there will be unhappy people. Probably the unhappiest will be anyone who had mortgage debt forgiven in 2012 as I believe that the current law has no exception for mortgage debt forgiveness.

[livesoft]

Thanks randomwalk. I don't know what kind of handwaving other posters are doing and appreciate the info you provided.

For 2012, I have done a preliminary run of our taxes with TurboTax. Despite income about 10% higher than last year, our taxes will be lower and we will not pay any AMT. We were able to follow the guidelines about how to pay low taxes for a family with similar income found in this thread: viewtopic.php?t=79510

No handwaving was used to pay lower taxes, but judicious use of current tax laws was used.

[Sidney]

Thanks randomwalk. I don't know what kind of handwaving other posters are doing and appreciate the info you provided.

For 2012, I have done a preliminary run of our taxes with TurboTax. Despite income about 10% higher than last year, our taxes will be lower and we will not pay any AMT. We were able to follow the guidelines about how to pay low taxes for a family with similar income found in this thread: viewtopic.php?t=79510

No handwaving was used to pay lower taxes, but judicious use of current tax laws was used.

Does TT 2012 have the lower AMT exemption or does it assume the patch gets passed again?

[Wagnerjb]

If the AMT is allowed to remain as is (meaning no patch for 2012), my additional taxes due to AMT will be $7,800 this year. If they were to allow the state sales tax deduction in 2012 (this expired after 2011), my additional taxes due to AMT would be $9,700 this year.

[livesoft]

In the past TT never assumed anything, but had current law. We don't have state income taxes nor mortgage interest deduction which are the usual AMT culprits, so I think we are good to go. In 2011, we didn't even itemize.

[Sidney]

In the past TT never assumed anything, but had current law. We don't have state income taxes nor mortgage interest deduction which are the usual AMT culprits, so I think we are good to go. In 2011, we didn't even itemize.

OK, thanks. Just curious. Not doing a prelim return right now because my estimated payments have put me in safe harbor already. I suppose anyone using the software can look at the AMT form if they need to and see the exemption line to know if it is the lower (current law) amount. All will be fixed by the time I file in September.

[grayfox]

.........................2012
National Income.... 15.5 T
Revenue...............2.5 T
- Spending............3.6 T
Deficit.................1.1 T

Revenue/National Income 16.13%
Spending/Nation Income 23.23%

If you paid less than 16% of your income, you are below average. You are the cause of the deficit.
If you paid 23% of your income, you are paying your way.

Someone making $100,000 per year should be paying $23,000 to cover the cost of all the services from the Federal Goverment they received.

[livesoft]

In the past TT never assumed anything, but had current law. We don't have state income taxes nor mortgage interest deduction which are the usual AMT culprits, so I think we are good to go. In 2011, we didn't even itemize.

OK, thanks. Just curious. Not doing a prelim return right now because my estimated payments have put me in safe harbor already. I suppose anyone using the software can look at the AMT form if they need to and see the exemption line to know if it is the lower (current law) amount. All will be fixed by the time I file in September.

Yep, we had safe harbor met, but a prelim return was important for us to decide on whether to bunch other deductions into this year or next year.

[livesoft]

Someone making $100,000 per year should be paying $23,000 to cover the cost of all the services from the Federal Goverment they received.

LOL! I received a lot more services than a measly $23,000 from the Federal government and thankfully I paid less taxes, too.

[MarkNYC]

If the AMT is allowed to remain as is (meaning no patch for 2012), my additional taxes due to AMT will be $7,800 this year. If they were to allow the state sales tax deduction in 2012 (this expired after 2011), my additional taxes due to AMT would be $9,700 this year.

Andy,

Are you sure you are stating the result the way you intended? Failure to pass the AMT patch could increase your AMT and your total federal tax by $7,800. But a reinstatement of the sales tax deduction should reduce regular tax by the same $1,900 that it increases AMT, resulting in no net increase in total federal tax as a result of the sales tax deduction?

[Wagnerjb]

If the AMT is allowed to remain as is (meaning no patch for 2012), my additional taxes due to AMT will be $7,800 this year. If they were to allow the state sales tax deduction in 2012 (this expired after 2011), my additional taxes due to AMT would be $9,700 this year.

Andy,

Are you sure you are stating the result the way you intended? Failure to pass the AMT patch could increase your AMT and your total federal tax by $7,800. But a reinstatement of the sales tax deduction should reduce regular tax by the same $1,900 that it increases AMT, resulting in no net increase in total federal tax as a result of the sales tax deduction?

Hi Mark. I think we are saying the same thing. What I am referring to is the "penalty" from AMT. If the sales tax deduction is reinstated, my regular tax will decline by $1900, but the AMT penalty will increase by $1900....and my total tax will remain unchanged (as you stated).

Said another way - if the sales tax deduction is reinstated for 2012 and AMT is patched for 2012, my total federal income tax burden will be $9,700 lower.

Best wishes.

[MarkNYC]

We don't have state income taxes nor mortgage interest deduction which are the usual AMT culprits, so I think we are good to go.

Since mortgage interest on acquisition debt is deductible for both regular tax and AMT, it is not an AMT "culprit." The most common culprits are individual exemptions and 3 exclusion items: (1) state and local taxes, (2) real estate taxes, and (3) miscellaneous itemized deductions, none of which are deductible for AMT.

[livesoft]

Thanks for the correction!

[chaz]

The cliff article:

http://www.forbes.com/sites/janetnovack ... liff-fall/

[Browser]

Thanks for the link to the Forbes article. I noticed a link in the article to Turbotax Taxcaster. This online program allows you to toggle the AMT patch "on" vs. "off" to approximate the impact on your taxes if the AMT patch is not enacted for 2012.

http://turbotax.intuit.com/tax-tools/calculators/taxcaster/

[interplanetjanet]

The most common culprits are individual exemptions and 3 exclusion items: (1) state and local taxes, (2) real estate taxes, and (3) miscellaneous itemized deductions, none of which are deductible for AMT.

I agree, and would add HOH filing status as the next item in that list - it is effectively an exclusion item for AMT. As a HOH filer I regularly owed AMT even when I only attempted to take the standard deduction.

[sscritic]

The tax forms are upside down. Just think about how this discussion would be going if every year you first computed your Tentative Minimum Tax and put it on line 44. Then on line 45 you put in the Alternative Regular Tax. The ART would be the difference between your Regular Tax and your TMT, but you would only have to add it on if your Regular Tax was greater than your TMT.

Just think of the discussion we would be having about the dreaded ART and how to avoid it.

[Wagnerjb]

The tax forms are upside down. Just think about how this discussion would be going if every year you first computed your Tentative Minimum Tax and put it on line 44. Then on line 45 you put in the Alternative Regular Tax. The ART would be the difference between your Regular Tax and your TMT, but you would only have to add it on if your Regular Tax was greater than your TMT.

Just think of the discussion we would be having about the dreaded ART and how to avoid it.

Well, about 2% of the income tax-related threads here at Bogleheads are about AMT. The other 98% are about how to avoid "the dreaded ART".

[jeffyscott]

Someone making $100,000 per year should be paying $23,000 to cover the cost of all the services from the Federal Goverment they received.

Taxcaster says income tax for single person with $100k income, taking the standard deduction, would be $18,738, that's 18.74%. Add payroll tax at 5.65% for this year and the total is 24.39%. Add in the additional "employer paid" share of the payroll tax and the total federal tax bill is about $32,0000. With income adjusted to $107,650 (to account for employer share of payroll tax), total rate is nearly 30%.

Now, if that income was instead from cap gains and dividends, the tax bill would be only 15%.

[livesoft]

Please do not confuse "making $100,000" with $100,000 of income.

[sscritic]

Please do not confuse "making $100,000" with $100,000 of income.

Unlike most politicians and the press, who confuse "making" with "income of" with "taxable income of."

[chaz]

Please do not confuse "making $100,000" with $100,000 of income.

Unlike most politicians and the press, who confuse "making" with "income of" with "taxable income of."

But a lot of us are confused.

[sscritic]

Please do not confuse "making $100,000" with $100,000 of income.

Unlike most politicians and the press, who confuse "making" with "income of" with "taxable income of."

But a lot of us are confused.

Livesoft said please. That's what my mommy taught me to say. Oh, and she taught me to say thank you, too.

[livesoft]

I can use Taxcaster to give a working couple with 2 kids and $100,000 of wages a $-500 tax bill. Yep, they get $500 back from the IRS and pay nothing in.

The assumptions are not too bad: Contribute $17K each to 401(k)s, $5K each to IRAs, $6.25K to HSA, $2K to health premiums, and $3K loss on investments (I think I wrote that right). Yes, I know they pay FICA and medicare.

Who said the government doesn't encourage saving?

Also please don't let your eyes pop out from my analysis.

[sscritic]

I can use Taxcaster to give a working couple with 2 kids and $100,000 of wages a $-500 tax bill. Yep, they get $500 back from the IRS and pay nothing in.

The assumptions are not too bad: Contribute $17K each to 401(k)s, $5K each to IRAs, $6.25K to HSA, $2K to health premiums, and $3K loss on investments (I think I wrote that right). Yes, I know they pay FICA and medicare.

Did they get anything to eat?

[chaz]

I can use Taxcaster to give a working couple with 2 kids and $100,000 of wages a $-500 tax bill. Yep, they get $500 back from the IRS and pay nothing in.

The assumptions are not too bad: Contribute $17K each to 401(k)s, $5K each to IRAs, $6.25K to HSA, $2K to health premiums, and $3K loss on investments (I think I wrote that right). Yes, I know they pay FICA and medicare.

Did they get anything to eat?

Food for thought.

[LadyGeek]

This thread has run its course and is locked. It's also off-topic. See: Future Tax Rate Questions are Off Topic Until Congress Acts and Forum Policy

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