Why Your 2012 Tax Bill May Jump By $8,000

AMT tax
AMT tax

From Mitt Romney to Warren Buffett, people are clamoring for fairer taxes. But thanks to yet another lapse by our lawmakers in Washington, more than 20 million taxpayers may pay a tax that was originally designed to hit only the ultra-rich -- and the increase could cost you as much as $8,000.

When it was first designed, the alternative minimum tax, or AMT, was meant to make taxes more fair. The idea behind the AMT was to make sure that rich people didn't use deductions to zero out their taxes every year.

Because of inflation, though, the AMT threatens to snare more taxpayers every year. So far, Congress has always acted to pass a "patch" to keep those additional millions of taxpayers from having to pay AMT.

In this election year, though, getting any tax law through the House and Senate will be tough. And If lawmakers don't act, the Congressional Budget Office says that the average tax increase will be $3,900, with some paying more than $8,000 extra.

The worst part of not knowing whether you'll have to pay AMT in 2012 is that if you don't have enough tax withheld from your paycheck, you could end up owing interest and penalties.

What to Do

To be safe, you should consider either raising your withholding or planning to make estimated tax payments, which are due starting in April.

Sponsored Links

But you do have at least some control over whether and how much AMT you owe. Although the AMT is complicated and involves a host of calculations, the big item that hits most people who pay AMT is state and local tax, whether it's state income tax or the property taxes you pay on your home. Usually, you can deduct those tax payments, but the AMT doesn't allow it.

So if you're in a high-tax state and an AMT patch doesn't come soon, start thinking about whether you can spread those taxes out, paying some in 2012 and some in 2013. If you can, it could help keep you from wasting a potential deduction and getting stuck with the AMT.

More on taxes:

NEXT: %Gallery-145848%

Motley Fool contributor Dan Caplinger is hoping for an AMT patch, but he's not holding his breath. You can follow him on Twitter here.









Your resource on tax filing
Tax season is here! Check out the Tax Center on AOL Finance for all the tips and tools you need to maximize your return.
When are Taxes Due? Important Tax Deadlines and Dates
Make sure your calendar is up-to-date with these important deadlines, dates, possible extensions and other factors in play for both individuals and businesses in 2021.
Read MoreBrought to you byTurboTax.com
Guide to Filing Taxes as Head of Household
The IRS has provided a series of guidelines to help taxpayers understand whether or not they qualify to file as head of household.
Read MoreBrought to you byTurboTax.com
Tax Tips After January 1, 2022
Your tax bill isn't chiseled in stone at the end of the year. Here are 10 tax tips and steps you can take after January 1 to help you lower your taxes, save money when preparing your tax return, and avoid tax penalties.
Read MoreBrought to you byTurboTax.com
Birth of a Child
The birth of a child is not just a blessed event; it's the beginning of a whole new set of tax breaks for your family. Learn how the newest addition to your family can help trim your tax bill, and how to save for your child's future in the most tax-efficient manner.
Read MoreBrought to you byTurboTax.com