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DON'T LET NEWLY PASSED TAX CUT FOOL YOU.
AMT IS MORE DANGEROUS THAN EVER.

Enjoy your tax cut while you can - if you get one. A rapidly escalating number of: middle-class California taxpayers will be subject to the Alternative Minimum Tax and wind up paying higher taxes - not the lower taxes promised when President Bush signed the record $1.35 trillion tax cut on Thursday.

Many taxpayers assume they earn too little to tangle with the AMT, a parallel tax system created in 1969 to ensure that the wealthy don't use tax shelters to avoid paying their "fair share." But that might be an unwise assumption.

One ominous sign: This year, the Internal Revenue Service added AMT worksheets to the instruction booklet for Form 1040A the comparatively streamlined form used by Americans who claim a standard deduction rather than itemizing.

Even before the Bush tax cuts, the number of Americans owing AMT was expected to increase from about 1.5 million this year to 20 million by 2010. At that point, a family of four earning $60,000 to $76,000 would have a one-in-three chance of owing AMT, the Treasury estimated.

But because the Bush tax cut does little to disarm the AMT, nearly 36 million taxpayers will pay at least $200 billion extra in AMT over the next 10 years.

The tax will strike taxpayers unevenly. Big families will be pinched harder than smaller families. Single parents will pay more than kid-free singles. And Californians will pay more than residents of states such as Texas and Florida - largely because residents here pay more in state taxes, must borrow more to buy homes and are more likely to be paid with incentive stock options.

"People hit by AMT are not the egregious tax-shelterers the AMT was meant to go after," said William G. Gale, a senior fellow at Brookings Institution, a Washington think-tank. Lawmakers have "made the AMT problem far worse than it was originally".

The AMT is a tax system that shadows the regular tax system, but with a different set of rates and write-offs. Many of the write-offs available when paying the regular tax, such as state taxes and personal exemptions, are not allowed for AMT purposes. Taxpayers are supposed to figure both their regular and AMT bills - and pay whichever is higher.

The AMT's exploding impact is a function of economic physics and politics. First, the amount of income exempted from AMT is not indexed to inflation, so higher wages threshold will drop to about $70,000. That's well below the $97,200 average household income in Santa Clara County estimated by the Association of Bay Area Governments.

"You can see the AMT marching down the income scale under the old law," Davis said. "It becomes a much quicker march under this bill."

Critics also charge that the AMT strikes certain sorts of taxpayers in different states harder than others. The leading factor now is high state income taxes. About 156,000 Californians paid AMT in 1998, the most recent year for which IRS figures are available. Californians accounted for about one of every five AMT taxpayers that year.

In the future, though, personal exemptions will be the No. 1 reason most taxpayers owe AMT. That means big families will suffer more - and that the AMT's pain will spread to low-tax states.

Bush tax cut, the Treasury predicted only 4 percent of single taxpayers with adjusted gross incomes of $50,000 to $75,000 would owe AMT in 2010. By comparison, 49 percent of head-of-household earning that much would owe AMT. At this point, though, it's unlikely Congress will make a move to fix the AMT. In part that's because lawmakers are operating under the adage that you don’t get credit for a problems that voters don't know they have. But it's also because there's political gridlock. Democrats already gave up more than they wanted with the $1.35 trillion tax cut, and reforming the AMT would cut government revenues even further.

US. Rep Zoe Lofgren, D-San Jose, has garnered bipartisan support for a bill that would retroactively provide relief to workers who owe AMT bills because they exercised incentive stock options, but she and others tax experts doubt any AMT reform will pass this year.

"Whether there will be any new tax bill is a very open question at this point," Lofgren said. They spent all the money.

MercuryNews





		Corporate Payment of Shareholder Expenses Hire your kids, cut your taxes Don't be fooled Implication of tax law Setting up your business? Smorgasbord of Benefits Tax planning Tax traps Travel expenses True impact of tax cut DON'T LET NEWLY PASSED TAX CUT FOOL YOU. AMT IS MORE DANGEROUS THAN EVER. Enjoy your tax cut while you can - if you get one. A rapidly escalating number of: middle-class California taxpayers will be subject to the Alternative Minimum Tax and wind up paying higher taxes - not the lower taxes promised when President Bush signed the record $1.35 trillion tax cut on Thursday. Many taxpayers assume they earn too little to tangle with the AMT, a parallel tax system created in 1969 to ensure that the wealthy don't use tax shelters to avoid paying their "fair share." But that might be an unwise assumption. One ominous sign: This year, the Internal Revenue Service added AMT worksheets to the instruction booklet for Form 1040A the comparatively streamlined form used by Americans who claim a standard deduction rather than itemizing. Even before the Bush tax cuts, the number of Americans owing AMT was expected to increase from about 1.5 million this year to 20 million by 2010. At that point, a family of four earning $60,000 to $76,000 would have a one-in-three chance of owing AMT, the Treasury estimated. But because the Bush tax cut does little to disarm the AMT, nearly 36 million taxpayers will pay at least $200 billion extra in AMT over the next 10 years. The tax will strike taxpayers unevenly. Big families will be pinched harder than smaller families. Single parents will pay more than kid-free singles. And Californians will pay more than residents of states such as Texas and Florida - largely because residents here pay more in state taxes, must borrow more to buy homes and are more likely to be paid with incentive stock options. "People hit by AMT are not the egregious tax-shelterers the AMT was meant to go after," said William G. Gale, a senior fellow at Brookings Institution, a Washington think-tank. Lawmakers have "made the AMT problem far worse than it was originally". The AMT is a tax system that shadows the regular tax system, but with a different set of rates and write-offs. Many of the write-offs available when paying the regular tax, such as state taxes and personal exemptions, are not allowed for AMT purposes. Taxpayers are supposed to figure both their regular and AMT bills - and pay whichever is higher. The AMT's exploding impact is a function of economic physics and politics. First, the amount of income exempted from AMT is not indexed to inflation, so higher wages threshold will drop to about $70,000. That's well below the $97,200 average household income in Santa Clara County estimated by the Association of Bay Area Governments. "You can see the AMT marching down the income scale under the old law," Davis said. "It becomes a much quicker march under this bill." Critics also charge that the AMT strikes certain sorts of taxpayers in different states harder than others. The leading factor now is high state income taxes. About 156,000 Californians paid AMT in 1998, the most recent year for which IRS figures are available. Californians accounted for about one of every five AMT taxpayers that year. In the future, though, personal exemptions will be the No. 1 reason most taxpayers owe AMT. That means big families will suffer more - and that the AMT's pain will spread to low-tax states. Bush tax cut, the Treasury predicted only 4 percent of single taxpayers with adjusted gross incomes of $50,000 to $75,000 would owe AMT in 2010. By comparison, 49 percent of head-of-household earning that much would owe AMT. At this point, though, it's unlikely Congress will make a move to fix the AMT. In part that's because lawmakers are operating under the adage that you don’t get credit for a problems that voters don't know they have. But it's also because there's political gridlock. Democrats already gave up more than they wanted with the $1.35 trillion tax cut, and reforming the AMT would cut government revenues even further. US. Rep Zoe Lofgren, D-San Jose, has garnered bipartisan support for a bill that would retroactively provide relief to workers who owe AMT bills because they exercised incentive stock options, but she and others tax experts doubt any AMT reform will pass this year. "Whether there will be any new tax bill is a very open question at this point," Lofgren said. They spent all the money. MercuryNews
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