Wednesday, February 28, 2007

What is the Alternative Minimum Tax? Is it FAIR?

The AMT exemption amount has increased for 2006 to $42,500 ($62,550 if married filing jointly or qualifying widow(er); $31,275 if married filing separately). So keep that in mind as you are putting together all paperwork for your 2006 taxes and don't be surprised if you too have to start paying it.

What is AMT you ask? And is it really fair?

It is was enacted by Congress in 1969 to guarantee that ALL tax payers pay their fair share of a minimum amount of tax. Higher income households that take advantage of too many tax breaks (such as passive losses from tax shelters) may have their tax bill severely lowered. If it goes down too low the government now makes them recalculate it with a more limited amount of exemptions so they pay at least some amount of tax.

When it was created it was to prevent a very small minority of wealthy individuals (3-4% of households) from paying taxes. Now it hits at least 15% of households - almost 20 million people. Now you don't even have to be wealthy to have it erase all those write-offs you worked so hard for. I know I get irked when it hits my tax return. Even though my family is considered high income, we live in one of the most expensive places in the country (San Francisco) and our income doesn't really go that far in this market. Not when single family homes start at $1,500,000.

I don't think the AMT is fair at all. It seems to me the government should limit some tax shelters instead of creating a rule to work around them. Because the legislation was not created well, it hurts the average tax payer who has never used any of those so called tax dodging strategies that the AMT was designed for.

By 2010 if we don't do something to curb it, it could affect 2 out of 3 households. So you too, if you haven't already, will start paying it. If we need to balance our national deficit, why don't we create a tax that is more fair across the board instead of this problematic workaround?

For up to date information on any Tax Code, visit


At 4/9/08 , Anonymous Dejan said...



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