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View Full Version : Does anyone know anything about the Alternative Minimum Tax for Individuals?


frannn
06-15-2006, 01:13 PM
I figured out our joint tax return as usual for 2005, expecting a hefty refund, since I had our employers overwithhold our income taxes during the year. I have been expecting our refund for quite some time now, but instead get a letter looking for me to fill out Form 6251, to see if we owe Alternative Minimum Tax. I quickly filled out the form, and at first glance, it looks like we will owe an additional of about 3200 in taxes! When I googled AMT, it looks like it hits people who have a household income )or AGI maybe) of over 75,000, who have high itemized deductions. I have 3 kids and own a home, so this is where I lower my taxes significantly. I am getting penalized by the government for owning a home and having 3 kids????? What am I missing here? It seems ridiculous to make us pay MORE taxes because we have 3 kids. Anyone have any experience with this? I am LIVID right now! If I raise my deductions to M2, to have less payroll taxes withheld during the year, should that solve the problem???

goofyforlife
06-15-2006, 03:45 PM
I know about it and know that my dh and i are dangerously close to having to pay it. We are only within a $1,000 of it.

I've been holding my breath the last couple years because the government keeps lowering the income level where you are stuck paying. I have only 1 kid and about $30,000 in deductibles that are home related (interest, taxes, etc....) We are far from rich and I wouldn't even consider us upper middle class for the DC area.

You might want to go up two deduction levels instead of one though...

bellarella
06-15-2006, 05:41 PM
If I raise my deductions to M2, to have less payroll taxes withheld during the year, should that solve the problem???

I can't help with the other part (though I do know after a certain income your child tax credit gets whacked, so that's probably where the difference is coming in), but raising your exemptions (you don't take deductions on your W4 form) will make the problem *worse* not better.

There is no correlation between the number of exemptions you claim and what your total tax bill is. Your exemptions allow you to adjust your withholding. That's how much you pay each check and that amount goes towards paying off your total tax owed. If you owed money this year, then you would need to lower your number of exemptions (and if you have already got them down to 0, then you need to put in an additional amount to withhold). This will have more money taken out of your check each pay cycle so that when you do your taxes, you will have paid enough to cover it. (Though over withholding is giving the gov't an interest free loan, if you under withhold and owe an excessive amount then you get hit with penalties.)

If, however, you were just expecting to get a bigger refund, and you don't actually have to write a check the IRS you can leave your exemptions alone. But changing them does nothing to affect the "tax owed" part of your taxes, it only affects "tax paid."

barkley
06-16-2006, 04:56 AM
i thought amt only hit when certain types of advantageous deductions/credits were used?

we got clobbered by it several years ago when dh needed to take classes to retain his then job (it was being reclassified with higher educational standards-existing employees were'nt going to be grandfathered into comparable positions w/o meeting ed. requirement) but his employer only paid a tiny tuition stipend. our cpa had us keep track of all the tuition, books, travel...

we only got hit with it the one year, but if i recall our cpa had us forego some credits and deductions, and restructure our contributions to retirement type accounts in order to avoid it (did'nt get the refunds we were used to getting, but at least some of the money was saved).

robsmom
06-16-2006, 09:06 AM
Alternative Minimum Tax basically looks at the total income that a person has and their itemized deductions. What they are basically saying is that if you have "a high income" and take a lot of deductions they will penalize you to make sure you are paying a fair share in tax. There are several problems with this at the moment. The biggest is that the definition of "high income" has not changed in a long long time, so every year more and more people are getting hit with this. The second issue tends to be where you geographically live and the cost of housing in your area. I have a friend that is a CPA in North/Central NJ. He was telling me he is seeing so much of it now because they pay very high proprety taxes, have high mortgage interest, and in NYC or NJ pay fairly high income taxes. I don't know what your mortgage or taxes are but lets assume they are fairly high and throw in the deductions for 3 kids and that is what is pushing you over. If it makes you feel any better, I only have 1 kid, have what I consider a small mortgage for my income and still paid AMT this year. - On a bit of social commentary, however, - you ask if you should be penalized for having 3 kids - what i think the AMT is asking is "why should we reward you for having 3 kids".

ducklite
06-16-2006, 09:16 AM
We had to file that way this year, and still got $14,000+ back on our refund. I'd suggest you talk to a CPA. The $300 or so they charge could save you thousands.

Anne

salmoneous
06-16-2006, 09:38 AM
You aren't paying more taxes because you have 3 kids. You are still paying less taxes than somebody in your shoes with no kids. Be careful who you complain to about this one.

barkley
06-16-2006, 10:20 AM
Alternative Minimum Tax basically looks at the total income that a person has and their itemized deductions. What they are basically saying is that if you have "a high income" and take a lot of deductions they will penalize you to make sure you are paying a fair share in tax. There are several problems with this at the moment. The biggest is that the definition of "high income" has not changed in a long long time, so every year more and more people are getting hit with this. The second issue tends to be where you geographically live and the cost of housing in your area. I have a friend that is a CPA in North/Central NJ. He was telling me he is seeing so much of it now because they pay very high proprety taxes, have high mortgage interest, and in NYC or NJ pay fairly high income taxes. I don't know what your mortgage or taxes are but lets assume they are fairly high and throw in the deductions for 3 kids and that is what is pushing you over. If it makes you feel any better, I only have 1 kid, have what I consider a small mortgage for my income and still paid AMT this year. - On a bit of social commentary, however, - you ask if you should be penalized for having 3 kids - what i think the AMT is asking is "why should we reward you for having 3 kids".

you're not kidding about geographic area impacting this-my cpa got some kind of software program that prints out a report of areas that the irs may call into question in an audit, and it shows what "i" report for a deduction vs the "average taxpayer" with similar income. every year it sez i have skewed mortgage interest and property taxes because i pay almost 300% more than the "average taxpayer"-uh duh, i live in california....

the irs realy needs to update it's definition of "high income"-the figures are so out of date that it's penalizing people who are barely getting by.

frannn
06-16-2006, 04:40 PM
I called the IRS to make sure I was completing the form correctly. I didn't complain, just went over the form. Turns out I was adding back the total mortgage interest I paid to my taxable income, when I should have eliminated it on their worksheet. The IRS reps are not allowed to fill the forms out with you line by line anymore, only answer questions about specific lines. She pointed out the home interest tax line where most taxpayers make mistakes, and that is where I made mine. Once I corrected that, I found that I only owed about 400 for AMT. Who would've thought I would be thrilled to owe an extra 400????

Cheshire Figment
06-16-2006, 06:34 PM
One thing to do is to write to your CongressCritter!

The AMT was originally designed so that high income people who had unusual or high adjustments and/or deductions would still pay tax. Unfortunately when it was implemented there was no indexing, so due to inflation more and more people are bein affected by it.

The real bad news is that under current, but temporary law, there is some indexing in effect. However, due to the voodoo economics of the first GWB tax cuts, the indexing is temporary and will vanish in a few years, so the AMT will then bounce back under the old rates with a vengance!