I got stuck paying Alternative Minimum Tax

21 years ago

How is this possible!!! We had to file for an extension because the accountant forgot some deductions. I just got around to looking at the revised taxes and see that I have to pay AMT. I am SO peeved I could scream.

I made less money in 2004 than 2003. But now I have RE taxes ($2000, not much), mortgage insurance (both of which I had in 2003 also) and some education expenses. I didn't have to pay much extra, but I can only imagine it will get worse. We are building, so the taxes and mortgage will jump in 2005. I am 37 and always payed the maximum in taxes based on my income because I had no deductions - no dependents, no RE taxes, no mortgage insurance. Now that I have these things I get penalized. This kills me. And no, I do not make a lot of money. In fact, DH and I barely get by. We have no kids, no second mortgage and we didn't exercise any stock options.

Are they going to fix this thing or what?

Here is a link that might be useful: AMT Story

Sort by:Oldest

Comments (9)

steve_o
21 years ago
I would not get my hopes up that they will fix this. The AMT is a trap for many people and a convenient source of income for the government. I'm not against taxes; just the way this particular one is levied. My sympathy....
joyfulguy
21 years ago
Hi Sue36,

Sorry to hear of your problem.

I wondered whether you might be Canadian, as we've also had AMT to contend with for several years now.

It clicks in relative to incomes over 40,000 or so.

If one is subject to AMT, there are certain avoidance/reduction techniques that are not available, up here - sorry, I can't be more specific (but they'd not concern you, anyway).

Up here, if a spouse or equivalent in a household earns over something under 8,000, each must file own tax return, though net incomes are added relative to certain issues.

Our tax deadline was April 30 - I had a fairly substantial amount to pay (including some left over from a previous year).

Paid something like about 10% of total income, though - so I can't complain too much.

Having been a personal financial advisor for several years, I've called several persons/agencies who advertised tax preparation service, to ask them if a number of their clients, at the end of their calculation, ask them for some advice as to some (minor or more substantial) changes that they might make in their financial system in order to reduce tax liability in future.

I was astonsihed to learn that almost all of them say that hardly anyone ever asks such a question.

As I've said to many, "Learning how money works is an interesting hobby - that pays well".

Some people spend more time planning their annual vacation - that lasts for what, a couple of weeks, possibly slightly more - than they do their financial future. With which they'll be dealing for the rest of their lives. Can anyone here spell, "stupid"? O.K. - misplaced/confused system of priorities.

Tax avoidance techniques is a system that should be practised by every taxpayer - after all, why should only the rich make use of some of the techniques that their friends in government have put in place to help them?

And are doing in spades in recent years in the benighted States.

Good wishes for working out a system to avoide AMT before next year rolls around. Surely your accountant can help devise such a plan - isn't tat one of the reasons that you pay her/him the fees required?

ole joyful
Related Discussions
Credit Cards: To 'Auto-Pay'...or not to 'Auto-Pay' ?
Q
Comments (10)
Hello all, The one and only auto-pay I have set up is thru my old credit union account. I have auto-deposit there for my checks. The CC with the auto-pay is also issued with/through them. (So, I'm not concerned about THAT one, since they already are "connected" - so to speak.) Also, that CC is the one I use for general purposes with a very low balance. I've not had a problem with that, nor any concerns, BECAUSE it is always a low balance - or paid off. It started out (while I was working) - I could opt a specific amount deducted fm paycheck every WEEK (remember the good old days when you got paid weekly?!!! lol), and automatic pymts to pay for my "one and only new car I ever bot". I LOVED it! (The car was also funded thru my credit union). I'd like auto-pay for TWO other cc's, but I don't want the cc's to have direct access to my cr. union acct. I also have a regular bank account which I've had for a very long time, (checking only - I dumped my savings due to their ridiculous monthly fees), and I use this to pay bills. I HATE this bank, but I've had my acc't for about 30 years - so don't want to close the account. What I've been doing for several years is writing a ck fm Cr. Union to deposit into my "regular bank scct" - but only enough to cover bills that I am paying (plus a small "buffer"), so that they make minimal $ on MY $. My balance is always VERY LOW in this account. (I REALLY hate this bank!) I considered setting up CR Union to make auto-deposits to my regular bank. (BUT, then again, I hate to "connect" the two.) And then set up auto-pay on cc's thru THAT account. PLUS, IF I did that, it would be under what I pay out each month,-(utilities, etc.), So...I would STILL have to write another check and go to ATM to make additional deposit every month. Sounds messy, huh? lol! Well, it is! I don't want to close out my regular bank acc't. Too old - and good for FICO??? I WON'T close out my Credit Union - also, too old. (plus I get lot's of benefits.) I've always been against the "online" pay method - Due to various reasons which I will spare you deatils! haha (In general - don't want to RELY on computer do to "crashes". afraid of change, many phishings, and just don't really understand how it works, etc...PLUS, I do NOT want emails to remind/inform me of this or that - I prefer paper coming thru regular mail.) BUT...hubby and son DO pay some bills online. I talked to hubby last night about how it works. I've decided to try it. (Slowly at first - & with a watchful eye) Check out Cr union online options first. See what I can/cannot do online. Sign up for that bank I hate - see what's available - what I can/cannot do - and if there are any FEES. Do an EFT fm Cr union to that bank. See how that works out. If all OK, check into CC's, see what. Try to make pymts online. (I'll start with one specific one first - see how it goes.) As long as I still get my paper statements in the regular mail each month with it all itemized... Hubby DID warn me that when I do the EFT - could take 3-5 days for it to go thru...(but then, it takes that time for regular mail also - for paying bills, that is.) I'll just have to do any bank TRFs a few days ahead. So, I have a lot to check into in next several days. Wish me luck! LOL!
...See More
Do we all pay double tax here in US?
Q
Comments (17)
Ah ha! I think I see where our misunderstanding lies. I see anything that is in the GROSS INCOME part of my paycheck as income. That is all taxed, except for what I may decide to put into a 401k, IRA, etc or into a tax-deferred saving plan for medical savings accounts or childcare accounts. So the gross income amount has my tax-deferred retirement savings and my tax-deferred health or childcare subtracted out. Then I pay income tax on what is left. Then they take out Social Security tax, and Medicare tax. You want the Social Security tax and the Medicare tax taken out, then the remaining income taxed. I, on the other hand, contend that the money you are using to pay your SS and Medicare tax IS income and is taxed like income. You disagree and think it should be treated like the tax-deferred savings for retirement, health care, and childcare. I still contend that these tax-deferred savings are a new development and have nothing to do with what money you pay your SS and Medicare tax on. Before about 1980, they never existed! The income tax was figured on your income, then you used part of that income to pay SS tax, Medicare tax, state income tax, sales tax, user fees, whatever. Actually, self-employed folks do not have the convenience of having SS and Medicare taxes taken out of our checks and must pay them ourselves. Employed folks get their employers to pay half of SS tax. I don't, I pay the whole amount of SS and Medicare taxes when I pay my taxes each year. I do get to deduct half of the SS and Medicare tax that I pay out of my income (so technically I do not have to pay income tax on the half of it that I pay for myself that others who have employers have paid for them. I pay $x extra in tax because I am self employed, and get all of 20% of that back by not paying taxes on it - but I am still out the other 80% that I had to pay - that employed folks had their employers pay for them.) Anyhow, we are paying income tax on our income, then using that income nanoseconds later to pay SS and Medicare taxes. And later to pay State and local taxes. And buy whatever else we buy. We do use our taxed income to pay for state income tax and to pay for real estate taxes. If you do the long form (most working-class folks do not earn enough to do so), you then can deduct these taxes from your income on Schedule A. Again, you are getting back maybe 15 - 30% of that money you paid in these taxes by deducting them from your income. Sales tax, building permits, licensing fees, all kinds of taxes do not get this special deductibility. So we are constantly paying taxes with money that we already paid income tax on. In a few special circumstances we may deduct these taxes from our income and thereby reclaim a portion of that money, but by no means are all taxes given this special treatment. Again, since fairness lies in the eye of the beholder, there is no way to construct a tax system that all would find fair. You don't like to pay taxes with money that was already taxed for income tax. Okay, I guess that this is as good a gripe as anyone has. As Albert Ellis, the great psychiatrist says, "Who said life is fair?"
...See More
Property Taxes & Improvements--How Do I Know I Can Afford Them?
Q
Comments (21)
Wow, thanks for all the responses. I am going to have to reread this over very slowly so that I understand everything you all said. To answer some of your questions and comments, it's not too much house for me Gardenspice because I am buying it for cash. Taxes are high in New Jersey. They are $6700. on this house now. I want to make sure I can continue paying the taxes on it when I get older so I don't want to do anything to it that's going to cost me more money in taxes. I understand that taxes go up anyway. But I want to keep them from going up as much as possible. The taxes are one reason I am looking into building an apartment in one of the outbuildings on the property. I'm thinking ahead for old age. I want to keep this house until I die. If I had a tenant, it would help with the taxes. Unless the tax cost of the improvement cancels out any profits I would make on rent. Of course I will look into all the rules and laws I have to follow if I was going to do something like this down the road and I'd never do it without getting proper permits, etc. I wouldn't be able to sleep if I didn't follow the rules! I am also looking into other ways to make some money with this property. Making an apartment was one idea. I've also thought of having weddings and other events there. I'm a bit of an entrepreneur and will do a lot of research. Whatever we do, we will be doing all the work ourselves. As far as what's going on inside the house right now, there are open permits on it now that the code officer told us was transferrable to us so we can complete the work. Nothing is hooked up in this house. The work was in progress and then the owners had to stop. It will take us three weeks to hook it all up. There will be lots more work to do but in three weeks we'll have enough done that we will be able to get the certificate of occupancy to move in. Other than the tax man kind of rushing me off the phone, all the town guys we've spoken to about this property have been very helpful and supportive of us--they want us in there. The house has been empty for a while and I think they're afraid someone's going to buy it and turn it into some kind of halfway house type thing (it's a big old Victorian) and they would rather have a family in there who is going to give it tender loving care. It is in a town with other multiple dwelling buildings, bed & breakfasts, plus it's on five acres. I'm not even sure what I want to do with it and what I can do to it at this point. My goal is taking care of these taxes. Where I live now, on an 11 acre farm in Virginia, my taxes are only $846 a year so this is going to be sticker shock! And this whole thing might be moot if I don't get my farm sold. We lost our buyer two days before closing! Now we're praying the old Victorian is still going to be there when we get a new buyer!
...See More
I'm stuck!
Q
Comments (110)
Jay, as much as I like those two infills, I'm thinking those designs are conflicting with and distracting the eye from the pattern of the windows. My suggestion is to use the RISING SUN design for a fence gate. I have a really fine book BY Suzanne Slesin called CARIBBEAN STYLE, and one of the houses/cases does have the rising sun pattern around the porch railing. The bottom on, with the XXXX is reminiscent of the British colonial style in the West Indies. I love a good porch rail though. So, I've taken photos of numerous railings and transom designs, and will zip the file up and send it to you. I'll meanwhile just put ONE photo up here. As soon as I get them off my camera. The book I mentioned is now out of print, but it might be available through some library. The shots are of actual railings, not just designs from a textbook. What I'm thinking would be good, is to have a GATE with your palm or sunrise, and then the same sort of design for your transoms, maybe the upper portion of your front door glass.
...See More
sue36
Original Author
21 years ago
My understanding is there is no way to avoid AMT. It kicks in automatically when you have a high number of itemized deductions, including dependants, real estate tax and state income tax. Mortgage insurance is not affected. So, unless you avoid having kids and avoid states with high real estate taxes and state income taxes (generally the coasts), there is nothing you can do.

I'm in the U.S.
measure_twice
21 years ago
I never had to deal with the AMT, so I looked at the forms and instructions.
IRS form .pdf
IRS instructions .pdf

The form says you might be liable for AMT if your income after most deductions is between 29K and 40K, so it is similar in size to the Canadian system. That is not much income at all considering the median household income for MA, USA is $78K before deductions. Then the form says you pay about 26% of that income. To me, that is a lot.

Now, the OP did not state what her income was nor do I want to know. It is clear the AMT was meant to catch high-income, high deduction people with its emphasis on options, shelters, and the like. It is also possible that it can catch a few moderate (not even median) income people.

I don't expect the AMT to be altered or eliminated any time soon
mxyplx
21 years ago
This looked interesting.

Any economic analysis must be a comparison of alternatives. You can't look at any one case and come to a valid conclusion. Therefore I used my 2004 tax program and ran out several simplified cases. I assumed the following:

Gross income $200,000
2 Chilluns
Married filing jointly
Claimed Actual Deductions of:
$8000,_$10,000,_$11,000,_$12,000,_$16,000,_$24,000.

This produced corresponding calculated deductions of:
$6281,_$8281,_$9281,_$9781,_$14,281,_$22,271.

The Standard is $9700 so this resulted in deductions used of:
$9700,_$9700,_$9700,_$9781,_$14,281,_$22,271.

The following results were obtained:

1) If the Line 28 Schedule B (allowed deductions) was Greater than the Standard Deduct of $9700 the AMT was ZERO.

2) If the Standard Deduction of $9700 was used the AMT was paid. It was $400 in each case.

3) Assuming Net Income = Gross Income - Actual Deducts - Taxes, then the Net income was highest with the Lowest Deducts even WITH the AMT.

================
Incidently in each case the child credit of $1000/child was disallowed due to the magnitude of the AGI which in this simplified study equaled the gross income.
currycook
21 years ago
Sue36,

We got hit this year too, first time. We did exercise a stock option last year, but no different and in fact less than some previous times. So, I'm not sure what triggered it, but what a pain in the wallet! I'm with you but don't think there's a chance to get rid of this one.
talley_sue_nyc
21 years ago
well, you might get rid of it if enough of us told our senators and reps to get rid of it!
cheerful1_gw
19 years ago
This is the third year we'll be stuck paying the AMT, due to high real estate taxes and state withholding. It's so not fair. We're not rich, and I'm sure a lot of people stuck paying AMT are not rich either. It's a cash cow for the government, so it's not going away any time soon.
saphire
19 years ago
Yes was just reading about this. Seems to affect people with high state taxes and high real estte taxes the most. Seems unfair since we are already paying more than average

I got stuck paying Alternative Minimum Tax

Comments (9)

steve_o

joyfulguy

Related Discussions

sue36
Original Author

measure_twice

mxyplx

currycook

talley_sue_nyc

cheerful1_gw

saphire

COMPANY

BUSINESS SERVICES

GET HELP

CONNECT WITH US

I got stuck paying Alternative Minimum Tax

Comments (9)

Related Discussions

sue36Original Author

COMPANY

BUSINESS SERVICES

GET HELP

CONNECT WITH US

sue36
Original Author