Kim Dixon and Patrick Temple-West at Reuters have a fascinating article on the leverage the “un-patched” Alternative Minimum Tax will give the Republicans. I am a tax and estate planning attorney. I do not prepare any income tax returns. A tax preparer might be aware of the following but I certainly was not and I keep a pretty close eye on what is going on in Washington.
Each year Congress “patches” the Alternative Minimum Tax. Dixon and Temple-West explain it best as follows:
Under U.S. law, taxpayers each year must pay the greater of regular federal income tax, or the AMT. The latter requires taxpayers to give up certain tax breaks, typically exemptions and deductions for state and local taxes and medical costs.
Only about 4 million taxpayers pay the AMT because Congress routinely passes a law to adjust for inflation, to spare middle-income and upper-middle income taxpayers. Without this legislative fix, called a “patch” by lawmakers, up to 33 million taxpayers will have to pay an AMT liability for 2012, according to the Internal Revenue Service.
That is one in five taxpayers.
The number of taxpayers affected by the AMT would jump because the AMT exemption amounts and income brackets do not automatically rise with inflation and also because across-the-board individual tax cuts a decade ago did not cut AMT rates.
States with the wealthiest taxpayers and the steepest state taxes, which typically cannot be deducted under the AMT, include New York, California and Illinois – Democratic strongholds.
That may make the threat of a lapse one of the Republicans’ strongest cards after Obama’s re-election last month on a theme of tax fairness.
The article is found at http://www.reuters.com/article/2012/12/04/us-usa-fiscal-amt-idUSBRE8B311O20121204
It should be noted Senate Bill 3412, the Middle Class Tax Act, already passed by the Senate, includes the AMT patch. However, it does not change the estate tax law and so would result in a $1,000,000 estate and gift tax exemption if no other legislation is passed. My blog discusses such act at https://kevinstaker.wordpress.com/2012/12/03/increasing-possibility/
On the other hand, the inclusion of the AMT fix in Senate Bill 3412 may increase its likelihood of passage. Again, without “fixing” the estate tax.
In the words of George Bailey in the movie It’s a Wonderful Life when he realizes Mary is naked in the bush. “This is a very interesting situation” (It is Christmas time you know).
We shall see.
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