Fiscal Cliff May Bring Increased Alternative Minimum Tax Liability -- The Alternative Minimum Tax is an important consideration for all middle-class income earners this tax season. --
January 09, 2013 /24-7PressRelease/ -- Tax season is coming, and that means it is once again time to gather your receipts and start navigating the complex web of deductions, exemptions and special regulations that are the federal income tax system.
Preparing an income tax return is more complicated for some people than it is for others. Every tax return triggers different considerations depending on how much money the taxpayer earns and where that income comes from. For many taxpayers, including middle-class earners, the Alternative Minimum Tax is always an important consideration.
What is the Alternative Minimum Tax?
The Alternative Minimum Tax was first enacted in 1969. Its purpose was to ensure that very rich Americans did not use income tax deductions and exemptions to avoid paying their fair share of taxes. Instead of limiting tax breaks that are helpful to the middle class, Congress decided to create an alternative formula that established the minimum amount of income tax that wealthy Americans must pay.
Filers who qualify for the AMT calculate their income tax liability under both formulas and pay whatever amount is higher.
The AMT was supposed to apply only to the wealthiest taxpayers. However, at the time the AMT was created, Congress did not build the formula to account for the effects of inflation. Then, it passed a series of income tax rate reductions. These two things combined to push the income cut-off for the AMT lower and lower.
Congress has not made structural changes to the AMT. However, it regularly applies "patches" to the law to keep the income limits in check. Usually, the AMT is expected to affect more than 5 million upper-middle-class households.
The number of taxpayers required to pay the AMT for tax year 2012 may grow by as many as 27 million if Congress does not take action. This is because the AMT is part of the impending "fiscal cliff"--a term for a set of spending cuts and tax increases that are scheduled to take effect automatically at the end of 2012. This year's AMT patch hasn't been applied, meaning approximately half of taxpayers earning between $75,000 and $100,000 could face unexpected tax liabilities.
Working with an income tax attorney
The issue highlights the need to work with an experienced tax attorney whenever you encounter complex income tax scenarios. The tax code is confusing, and making a mistake can have serious consequences beyond just paying more than you owe. You could end up facing a tax controversy or an audit with the IRS, or incur substantial financial penalties.
If you have any questions about your 2012 income tax return, including the potential application and effect of the alternative minimum tax provisions, be sure to talk to an experienced tax attorney who can make sure your return is completed correctly.
Article provided by Bredemann & McFarlane, PLC
Visit us at http://www.taxlawaz.com
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