Danoff
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- Mile High City
It's tax season, and I'm finding out for the first time about a little provision in our tax code that is apparently going to start impacting more and more middle class Americans (I'm only 24, I haven't had much tax experience). It doesn't happen to affect me this year, but I thought I would share it with you.
It's called the Alternate Minimum Tax. It's another way of calculating your taxes that you have to go through. You basically calculate up your taxes two ways - the regular way with all of your deductions (ehem government meddling) or the other way in which you get no deductions and there's a marriage penalty.
And guess what... you get to pay whichever one is higher .
The alternate minimum tax gives single people 40k in standard deductions (so if you make less than 40k/year you don't have to worry about it). It gives married people something like 58k in standard deducations (bam marriage penalty right there). And then what? After you've subtracted your standard deductions from your income you calculate the tax at 26% of the rest. (Oh I'm pretty sure you get to take pre-tax retirement savings off first, since you'll owe tax on that later)
If you owe more by calculating your taxes this way then you get to pay this number. If it turns out to be less then don't worry about it.
What I think is interesting about this is that it's a flat tax. I like that. No deductions, I like that too. In fact, I propose that we eliminate the OTHER way of calculating income tax - you know - deducting your mortgage interest, deducting your charitable donations, deducting your gambling losses (from the winnings of course) and the car mileage that you used for work (at like 30 cents/mile). Deduct deduct deduct - everything the government says you SHOULD have been spending your money on.
So, a little history. The AMT was invented like 80 years ago. Back then, millionaires (that was a lot of money back then) were deducting 100% of their income. Rather than do the obvious (eliminate deductions) they developed this method to increase taxes on the rich. Since then it's barely been used from what I understand. Recently, however, after inflation has taken its toll over many years and more married couples are working and the tax rates have started coming back down - more and more middle class people are having to pay the AMT.
Anyway I thought it was interesting, what do you think about the AMT? Did you know about it?
It's called the Alternate Minimum Tax. It's another way of calculating your taxes that you have to go through. You basically calculate up your taxes two ways - the regular way with all of your deductions (ehem government meddling) or the other way in which you get no deductions and there's a marriage penalty.
And guess what... you get to pay whichever one is higher .
The alternate minimum tax gives single people 40k in standard deductions (so if you make less than 40k/year you don't have to worry about it). It gives married people something like 58k in standard deducations (bam marriage penalty right there). And then what? After you've subtracted your standard deductions from your income you calculate the tax at 26% of the rest. (Oh I'm pretty sure you get to take pre-tax retirement savings off first, since you'll owe tax on that later)
If you owe more by calculating your taxes this way then you get to pay this number. If it turns out to be less then don't worry about it.
What I think is interesting about this is that it's a flat tax. I like that. No deductions, I like that too. In fact, I propose that we eliminate the OTHER way of calculating income tax - you know - deducting your mortgage interest, deducting your charitable donations, deducting your gambling losses (from the winnings of course) and the car mileage that you used for work (at like 30 cents/mile). Deduct deduct deduct - everything the government says you SHOULD have been spending your money on.
So, a little history. The AMT was invented like 80 years ago. Back then, millionaires (that was a lot of money back then) were deducting 100% of their income. Rather than do the obvious (eliminate deductions) they developed this method to increase taxes on the rich. Since then it's barely been used from what I understand. Recently, however, after inflation has taken its toll over many years and more married couples are working and the tax rates have started coming back down - more and more middle class people are having to pay the AMT.
Anyway I thought it was interesting, what do you think about the AMT? Did you know about it?
That's another car or 3 (in my case)! 
I have to admit, my dad still does my taxes, hes an accountant, he likes that kind of thing 
