Outdated AMT May Finally Be Eliminated
Last week, Forbes.com ran a series of articles about the pending tax reform known as “Tax Reform Week”. The articles consisted of submissions from guest bloggers about various topics involved with the proposed tax reform. Unfortunately, my article did not get chosen to be posted 🙁 . However, I figured I should share anyways.
The proposed tax reform that is in the current limelight has different angles to it which could affect a wide array of American taxpayers. One of the proposed issues involves the AMT. You may be asking yourself, what the heck is AMT? Is that the machine that dispenses money? Haha no, it actually does the opposite, it takes your money. AMT is an acronym for Alternative Minimum Tax.
As a tax professional, it is one of the most difficult tax laws to explain to taxpayers. How do I explain to somebody that they can no longer deduct their real estate taxes because their income is now too high? You can do a web search to read up on all the technical details about what AMT is and how it works, but let me put it in plain English. The AMT is a tax law that was created 50 years ago to prevent the wealthy taxpayers from using loopholes to avoid paying the proper amount of tax. If you make a certain amount of money, you must pay a certain amount of tax, regardless of your deductions. Back then, you were considered wealthy if you were a married taxpayer showing $200,000 on your tax return. The original law was intended to affect a couple hundred taxpayers that fell into this category. Fast forward to 2017, $200,000 per year is now considered middle class. The AMT never accounted for inflation, so if you make $200,000 you are still subject to the AMT. This tax law now affects over 30 million taxpayers! In 2013, they did finally begin to adjust the threshold for inflation, but it is still affecting way more taxpayers that it was originally intended to affect.
The tax reform proposes that the AMT be eliminated. I am in favor of the elimination of this proposal. At the very least, it is time to turn the AMT into the law that it was originally intended to be. The .001% of taxpayers that it was intended to affect has ballooned into 10%. Adjusting the AMT to affect the original percentage of taxpayers would move the current 30 million affected down to 3,000.
Eliminating the AMT will allow middle class taxpayers to keep more of their hard-earned money. Almost every tax law out there has been innovated over time. It is time to get rid of this ancient tax law that is no longer serving the purpose it was intended to do. Can you imagine if wages were the same today as they were in 1959? A large portion of the world would be living in poverty. The times have changed, the AMT has not. It is time to make the change.
Nicholas Hammernik, E.A.
Nick Hammernik is a tax adviser in Milwaukee, WI.