- This topic is empty.
-
AuthorPosts
-
September 27, 2012 at 3:25 am #772247
JimmyGMemberSeptember 27, 2012 at 4:02 am #772248
redblackParticipantskeeter:
ahh. so the various states’ income tax structures affect the federal AMT.
so what kind of deductions are we looking at? specifics with numbers, please.
i.e. are we talking to average income earners? or are we talking to people who make more than the CA average of $58,000 per year?
(and i hope everyone here realizes that the top incomes drag the average number up. median income is a better indicator of where the money is.)
September 27, 2012 at 4:14 am #772249
kgdlgParticipantI make well under 100k but got hit with it this year on the mini audit I underwent due to the adoption credit I claimed. Basically, I had too many deductions so they applied the AMT to recoup some of my tax. I don’t think I would have hit it if I hadn’t claimed the credit. Stupid and silly and cost me about 2k.
September 27, 2012 at 4:31 am #772250
redblackParticipantanotherwsmom:
(and bostonman, who is not a tax accountant – but maybe skeeter:)
If one makes anywhere between $500k-$1million/year, it is more likely to be paid.
doesn’t the AMT also accrue based on how you garner your income? i.e. labor versus investment?
September 27, 2012 at 3:46 pm #772251
skeeterParticipantHere is a nice explanation of AMT. Note this covers the AMT rules for both businesses and individuals. Meg, this article also explains which deductions are treated differently for AMT purposes.
September 27, 2012 at 10:46 pm #772252
waynsterParticipantnope not me just a blue coller worker who works his butt off and pays more then those who have off shore accounts….lol
September 28, 2012 at 4:30 am #772253
redblackParticipantskeeter: that’s lame. we’ve all seen that article. and i think it might be biased. :O
i really want to hear from people who actually pay the AMT regularly because the communist federal government is intruding on their lives – or maybe they’re too stupid to figure out how to avoid it. and i want to know just how onerous it is and how much marrow it has sucked from the american economy.
i don’t necessarily want to hear from people who occasionally get hit with AMT because of some weird out-of-the-blue deduction. but feel free to chime in, like kgdlg did. because the more of those stories we talk about, the more we can understand this demonic tax law.
cripes. maybe you guys have friends in other states who pay it. let them chime in.
or maybe – just maybe! – all of this hysteria over the AMT is more typical b.s. pandering by the downtrodden to their masters in the top percentile of income-earners. kind of like the hysteria over the “death tax.” or “death panels.”
nonetheless, it’s the same kind of pandering to voodoo economics that got pope reagan elected.
September 28, 2012 at 3:24 pm #772254
skeeterParticipantRedblack, okay I will say it a fourth time.
If you want to hear from people who are paying AMT you are posting messages in the incorrect forum. You need to reach out to people who live in a state with a state income tax – New York, California, Oregon. It is very, very rare for a Washingtonian to pay AMT.
My brother and sister in law (who live in California) pay AMT every year. They have an income that, for their area, would be considered upper middle class. The reason they pay AMT is because they are not allowed to deduct state income taxes when calculating their AMT.
September 28, 2012 at 6:43 pm #772255
kootchmanMemberredblack wants to hear.. what was preconceived. Skeeter… yes and no… some states have appreciably higher sales tax rates than they do income taxes. Basket cases like Ill, NY, CA…hopeless no matter their tax scheme. BUT .. here is where AMT does kill… sole proprietors cannot expense all of their deductions… as they occur. If I can’t expense it… I don’t buy it. If you for instance, start a new business venture. The early years are horrifically expensive. If you gross as a SP.. say 250K … but in that pursuit, you spent 220… travel, mileage, equipement, etc.. you are going to indeed get AMT invoked. Your AMT may easily exceed your net. Ya live on cash flow… with AMT, your discourage exactly what we need… purchasing and business activity. Dubya tripled the SB deductions .. purchased 2 company vehicles, upgraded the office with new server, work stations, etc. Not now. I pay AMT with “now” dollars, and now have to take depreciated dollar depreciation expense over 7 years. Solution? Stop upgrading and buying to preserve cash flow. Result? Less economic activity, fewer jobs. Or.. do less charitable giving, don’t spend on employee education… cut benefits.. etc, etc The AMT is a small business job killer. Salaried, wage earners, don’t have to face it as often … but the folks making those jobs happen are stuck in neutral. When you see business formation at its lowest level since the great depression… you need cash to grow. Not depreciations tables. Of the 3.8 million who did pay AMT…. 70% of them were small business owners. Y’know.. the growth engine of our service economy?…. the one being choked to death.
September 28, 2012 at 8:05 pm #772256
elikapekaParticipantOkay, I have a feeling I’m going to look stupid here, but if we have no income tax to deduct, and somebody in California isn’t allowed to deduct their income tax, then aren’t we on a level field as far as AMT? I mean if I have 200,000 and pay no state income tax and somebody from California has 200,000 and paid 5,000 in state income tax that they can’t deduct, aren’t we both operating from a base of 200,000, and subject or not subject to AMT on the same basis?
I have a feeling I must be missing something obvious here.
September 28, 2012 at 8:59 pm #772257
justadumbguyParticipantelikapeka,
The fact that you take the deduction for the state tax while filling out your regular 1040 can be what pushes you into the AMT maze. Making some numbers up … lets say you deduct $5,000 in mortgage interest and $10,000 in state taxes and the limit for your income without triggering AMT is $12,000 in deductions. With mortgage interest plus state tax deductions you have now triggered AMT.
However if you live here in Washington State you’d have only 5k of deductions so you’d not trigger the AMT. Make sense?
September 28, 2012 at 9:02 pm #772258
skeeterParticipantElikapeka – your question isn’t silly at all. It makes perfect sense.
In your example, lets say the person in Washington pays income tax of $40,000. The person in California pays income tax of $38,000. The person in CA pays less federal income tax because he paid state income tax and deducted that state income tax for regular tax purposes.
Now, for AMT purposes, let’s say the person is Washington has an AMT tax of $39,000. So she pays no AMT because her regular tax of $40,000 is greater than $39,000. The person in CA also has an AMT tax of $39,000, the same as the person in WA. The person in CA will pay an AMT tax of $1,000. Why? Because you have to pay the larger of your regular tax or the AMT tax. Since the Californian had regular tax of $38,000 and AMT tax of $39,000, she will pay regular tax of $38,000 PLUS AMT tax of $1,000.
Your example, along with my figures above, explain exactly how the AMT tax works.
The person in California might feel ripped off. For regular tax purposes she was allowed to deduct her state income taxes, but for AMT purposes she lost the deduction.
September 28, 2012 at 9:07 pm #772259
skeeterParticipantjustadumbguy is not so dumb, at least when it comes to taxes :-) He is exactly correct.
September 28, 2012 at 9:15 pm #772260
megMemberelikapeka,
“operating from the same base?”
Yes & no. Yes, as far as regular Federal tax rates. But, no, as far as Overall tax paid.
The resident with high state & local income tax rates, who has to pay the Federal AMT, will be paying much more in Income Taxes on their “equal sized equal-deductions” income, than their counterpart in another state who pays no state or local income tax, who pays the regular Federal income tax amount.
For example, in NY in 2009 you paid a personal state income tax of:
4% on income between $0-$8000
4.5% on income between $8000-$11000
5.25% on income between $11000-$13000
5.9% on income between $13000-20000
6.85% over $20000
Then there is Local income tax, sometimes 1-2% on top of state income tax.
Then, there’s Federal income tax, with rates the same for everyone in the country. IF you can deduct the income tax you already paid to your state and local govts, the regular Federal tax amount you owe *should* be lower than your counterpart who pays NO state/local income tax. But, if you can’t use the regular Federal tax rate and you are forced into the AMT, then you will pay more income tax overall, than your fellow-citizen.
That’s as I understand it, in simple form.
September 28, 2012 at 9:19 pm #772261
elikapekaParticipantOkay, the lightbulb is on – I wasn’t understanding that the deductions could actually push you into AMT. I’ve got it now.
Thanks for the clear explanations and not making me feel like an idiot. :-)
September 28, 2012 at 9:45 pm #772262
megMemberKootchman,
I just recently been diggin into the effects of AMT, from the non-business side. haven’t yet looked at the business side.
About state sales tax. For individuals at least, sales tax is a smaller bite than income tax, and sales tax is a lot easier to avoid by using internet, going to another state, just doing without, yard sales, etc.
Your experience indicates businesses spend more sales tax $$ than do individuals. If so, yeah, I can see how AMT would kick in with their sales tax deductions, much the same as an individual’s income tax deductions.
September 28, 2012 at 9:53 pm #772263
skeeterParticipantMeg is exactly correct. Sales tax is a much, much, much smaller bite than income tax. You pay income tax on your whole salary (less some deductions.) But you only pay sales tax on taxable purchases. Housing, education, groceries, etc are not subject to sales tax.
Spot on meg.
September 28, 2012 at 10:16 pm #772264
elikapekaParticipantKootchman – in all seriousness, talk to your accountant about incorporating. It’s some money up front and more paperwork on the tax side, but either a C or S Corp could save you a ton of money.
September 29, 2012 at 1:56 am #772265
kootchmanMemberIt’s a hell of a lot of TIME and money… but I do have an LLC /C distribution up to the max for FICA.. and I don’t always hit it right on the numbers. Ya got the state to file quarterlies to, then the feds.. and of course… you have to have a federal tax ID number.. a smart thing not to have. My accountant is very astute.
meg.. income tax is smaller, but it is additive.. sure I can avoid taxes by purchasing out of state.. but understand … you are technically breaking the law.. you supposed to self report out of state purchases. Right. These are the things though that liberals never consider in their tax the wealthy.. and who knows what that means? who is wealthy? It varies by envy or greed level of the beholder. But have ya noticed that income state taxes are losing their business tax base? It’s a rat race to leave Ill, and CA… here’s todays favorite… WA will raise the minimum wage 1.65%… about 15 cents. Hooray. it fair, it’s good, it’s so right on! So progressive…. meanwhile… the state ups your drivers license renewal to $80. … so… or more than two months of that raise…. see how the system works? Can’t wait to see what happens to your next government service will cost… I will deduct that license renewal as a necessary business expense… got to have it.
September 29, 2012 at 2:08 pm #772266
TanDLParticipantYou defend corporate policies in other posts for being smart, but you won’t incorporate because it’s not a good thing to have a federal ID number and there are too many tax forms for your accountant to complete? Quarterlies aren’t hard, Kootch. You can actually have services online file them easily. If you have a social security number then you actually already have a federal tax ID and another corporate federal tax ID shouldn’t make that much difference. What am I missing here?
Please tell me why this is a concern for you and your accountant. I’ve never heard such a thing and would like to know. Thanks…
September 29, 2012 at 6:31 pm #772267
redblackParticipanthere’s the relevant k0o0tchman quote that i’m trying to debunk:
That sure as hell wasn’t the 2 per cent …. that was almost every married couple making 100K jointly or more.
https://westseattleblog.com/forum/topic/stocks-surge-on-obama-speech-day/page/2#post-184997
here’s a counter argument:
Knowing who pays the AMT is necessary to understanding who would benefit from repealing it. Because households with annual incomes above $200,000 are the source of more than half of all AMT revenue, more than half of the benefits of repeal would go to these high-income households.
http://www.cbpp.org/cms/?fa=view&id=1063
kootch also said:
28 million middle class taxpayers get hit with the reappearance of the dreaded AMT… with inflation rising.. that means more revenue.
and he quoted wikipedia as saying this:
In 2010, if nothing is changed, one in five taxpayers will have AMT liability and nearly every married taxpayer with income between $100,000 and $500,000 will owe the alternative tax.
however, that liberal rag, reason, has this to say:
According to the Congressional Budget Office, last tax season 4.5 million taxpayers were affected by the alternative minimum tax, an increase of over 4 million taxpayers since 1970.
http://reason.com/archives/2011/06/10/the-facts-about-the-alternativ
that article is from 2011, and their pie chart shows even fewer filers with incomes under $100,000 getting hit with AMT – like about half of those represented in the CBPP chart from 2007.
i’m not saying that the AMT isn’t creeping. but can we drop the hyperbole and talk about the facts?
the fact is that the bush tax cuts increased the reach of the AMT by lowering everyone’s regular income taxes.
another fact: four states – california, new york, new jersey, and massachusetts – pay about 46% of all AMT revenue.
note that these are all blue states.
the AMT can be fixed by indexing it to inflation. but another fix would be to simply cap it.
i see the effects of the AMT creeping, but let’s be realistic here: there’s no good reason to do away with it altogether, because it still serves its function of taxing people who would otherwise squirt through loopholes and pay zero in taxes on vast amounts of investment income.
September 29, 2012 at 9:22 pm #772268
kootchmanMemberFiling taxes is a a minimum a 10 day affair throughout the year. . It’s not just a push send button. You have to plan around a tax code of infinite complexity. what to buy, when to buy, when to sell, when to take a dividend, when not to.. It’s not worth it anymore. Corporations and being incorporated are two different animals. It’s a simple question I ask of my old decrepit peer group… would you even want to start a small business again in this environment? The answer is not universally “no”… but a surprising number say they wouldn’t do it. Or even, could do it. I don’t have a corporate staff with a world vision and perfect knowledge. Corporations have the economy of scale to protect their own and a world universe to make those decisions. It’s all in the stats… lowest rate of new business start-ups in over 60 years. Tell me a tax code is workable when a 500K grossing SP HAS to incorporate and hire a tax attorney. Time for a rewrite and time to stop throwing cold water on private capital formation.
..
September 30, 2012 at 1:47 pm #772269
JoBParticipantredblack..
those highest hit by the alternative minimum tax are two income high wage earners with a substantial mortgage and children.
in other words.. those who are supposedly living the American dream…
that.. for the most part.. they make enough money to not require the child raising credits that often push them over the limits is something that is rarely mentioned.
there are exceptions.. the family that gets hit by catastrophic health care bills the year that two high wage earner income becomes one…
or as someone else noted… the additional expenses in an adoption year…
but for the most part.. it’s those who have worked hard and hit the American equivalent of the wage jackpot.
those who derive their income from sources other than wages aren’t much affected since the income to deduction ratios that trigger the alternative minimum tax kick in after they have “expensed” their income away.
September 30, 2012 at 2:47 pm #772270
redblackParticipantyou’re absolutely right, kootch. but i think it’s justified. my belief is that the tax code has grown into the monstrosity that it has because business has developed a propensity to pull money out of the economy – or the country – and never put it back.
October 4, 2012 at 11:40 pm #772271
kootchmanMemberWell tell ya redblack… Job is close … but not quite on target .. yet.
“those who derive their income from sources other than wages aren’t much affected since the income to deduction ratios that trigger the alternative minimum tax kick in after they have “expensed” their income away.”
The AMT JoB is designed specifically to prevent “expensing” your way out of tax liability. You still don’t understand the AMT..AMT hits small business owners the most…..So… one stops spending, AMT has other “tricks” too… like paying taxes on unrealized income. 100 to 200K… is not the wealthy.. it’s the new sweet spot for the IRS. US earnings are accounted for in US dollars.. and US taxes are paid. It’s not that USA coporations have pulled money OUT of the economy… it’s the 2.7 trillion they made overseas and won’t bring back to watch 1/3 of it vaporize in the maw of the federal government. And you can’t force it to happen for a host of reasons.. trade agreements for one. I have tried to explain it.. capital goes where it gets the best treatment. Be capital friendly and not class envious and give American corporations the ability to bring the money home….. where it can be invested. You going to bring 3 trillion home to be taxed at 35 per cent? 25% when that same money is taxed at 5% , 10% in foreign markets? Better to get a little bite than nothing…. and have a 2.7 trillion capital pool to work with.
-
AuthorPosts
- You must be logged in to reply to this topic.