The alternative minimum tax, commonly referred to as the AMT, is one part of the fiscal cliff that isn't getting a lot of widespread attention. It should.
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Unless Congress acts soon to patch this parallel tax system, 60 million American taxpayers could be affected.
All those folks would have to at least fill out the extra AMT forms. About 28 million of them would have to pay the added tax.
The problem is that the AMT, created more than 40 years ago to ensure that wealthy taxpayers paid at least some tax, was not indexed for inflation. As taxpayer earnings have increased over the decades, more folks have hit the income level at which the AMT applies.
Rather than just adding a line to the AMT law saying that it would be indexed for inflation as in so many other tax-related laws, Congress has opted instead to patch the AMT each year or so.
The House and Senate essentially up the earnings threshold at which the AMT must be considered.
Lawmakers last did so in 2010 when they were fighting about the Bush-era tax cuts back then, the first time the laws were facing expiration. They patched the AMT back then for two years.
But here's the problem. Two years for Congress doesn't always mean two years in the future. That year, the AMT patch for 2010 hadn't been approved as the year was winding down. When Congress finally did OK the 2010 patch, barely in time for the coming tax-filing season, the members also approved an AMT patch for 2011.
So here we are with the 2012 calendar pages flipping by and no AMT patch for 2012 tax returns that must be filed next year.
We don't know what the AMT income exclusion levels will be, meaning we can't get an idea as to whether we might owe the Internal Revenue Service extra money when we file.
The uncertainty about the AMT also affects year-end tax moves. Some expenses that are deductible under the regular tax system aren't deductible when figuring an AMT bill. They include state and local income taxes, real estate taxes and miscellaneous itemized deductions.
If you're not going to be affected by the AMT, you can, for example, pay your property taxes in December, so you can deduct them on your itemized tax return. But if you will face the AMT, you won't get that deduction, so you can hold off and pay your property taxes by the 2013 due date.
The IRS also is affected. It has to wait for the AMT amounts for 2012 so it can reprogram its computers. And since that takes a while, it will delay processing of AMT-affected returns, possibly for months.
So thanks, Congress, for screwing around and possible screwing millions of taxpayers out of tax-saving moves now and tax dollars next filing season.
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