AMT Relief in the Works, Says Congress

lady looking worried over her taxesImagine having to calculate your federal income taxes twice. That's actually what will happen to more than 20 million taxpayers in 2011 if Congress doesn't take steps to fix the alternative minimum tax, or AMT, before the end of the year.

When it was enacted in 1969, the AMT was intended to ensure that high-income taxpayers didn't avoid paying taxes. The idea was that wealthy taxpayers should not be able to whittle their taxable income down to zero by taking advantage of too many tax breaks, like the home mortgage interest deduction or real estate tax deductions. With the AMT, taxpayers calculate their federal income tax twice, once under the "regular" rules and again under the AMT rules, which eliminated most of those favorable tax breaks. Taxpayers would then pay the highest tax amount calculated under both schemes.

Over the years, however, the AMT hasn't worked as planned. The AMT hasn't been indexed for inflation, so the number of taxpayers subject to the tax includes those never intended to be affected in the first place. The National Taxpayer Advocate has reported that 77% of the income subject to AMT is actually attributable not so much to breaks associated with the wealthy but for the disallowance of "ordinary" deductions like those for state and local taxes as well as personal and dependency deductions.

So why not simply repeal the AMT? The answer is easy: money. The AMT brings in about $70 billion per year. In a tough economy, repealing the tax would create a fairly substantial hole. Nobody in Congress wants that kind of blame.

So, for 2010, Congress is doing what it does at the end of every year: scrambling to "patch" the AMT. Rather than a complete repeal, Congress generally raises the limit for income subject to AMT at the end of each year.

This year, a bipartisan group, including Sen. Max Baucus (D-Mont.) and Sen. Chuck Grassley (R-Iowa), sent a letter to IRS Commissioner Doug Shulman proposing another one-time fix. They told the Commissioner:
"We will work to craft the AMT provision so that, in the aggregate, not one additional taxpayer faces higher taxes in 2010 due to the onerous AMT ... We urge the Internal Revenue Service to take all steps necessary to plan for changes that would be made by the legislation."
Without any changes, middle class taxpayers could be socked with additional taxes because of the AMT averaging about $3,900. In fact, for 2010, the exemption has actually decreased under current legislation to a mere $33,750 ($45,000 if married filing jointly or qualifying widow or widower; $22,500 if married filing separately). As of this week, the IRS was still expecting that to change, noting on its website, "Congress is expected to consider legislation that would increase the AMT exemption amounts" and promising to post updates as soon as possible. With just a few weeks left in 2010, we're all watching.

How to Correct Federal Tax Returns

The IRS has a simple process in place that allows you to amend your tax return. Find out how to amend your tax return in this article on tax tips.

Read More

Brought to you by TurboTax.com

Identity Theft: 7 Steps to Reclaiming Your Identity and Keeping it Safe

As more personal information continues to be stored online, the risk of identity theft also increases. The Bureau of Justice reports that millions U.S. residents experience identity theft each year. If someone uses your personal data pretending to be you, it's a serious crime. With quick, decisive action, you can help discover the fraud, stop further damage and reclaim your identity. Here are six steps to get you on your way.

Read More

Brought to you by TurboTax.com

What Are Estate Taxes?

When someone in your family dies owning property, the federal government imposes an estate tax on the value of all that property. The law that governs estates is constantly changing and so the law may be an inconsistent from one year to the next. However, the good news is that the estate tax doesn't usually affect many American taxpayers who aren't in the top 2 percent of the nation's wealthiest people.

Read More

Brought to you by TurboTax.com

Energy Tax Credit: Which Home Improvements Qualify?

Taxpayers who upgrade their homes to improve energy efficiency or make use of renewable energy may be eligible for tax credits to offset some of the costs. As of the 2017 tax year, the federal government offers two such credits: the Residential Energy Efficiency Property Credit and the Nonbusiness Energy Property Credit. The credits are good through 2017, except for the solar credits which are good through 2019 and then are reduced each year through the end of 2021. Claim the credits by filing Form 5695 with your tax return.

Read More

Brought to you by TurboTax.com
Read Full Story