Like a damsel repeatedly rescued from disaster, about 24 million taxpayers once again have been spared from being hit by the alternative minimum tax originally designed to insure everybody pays something.
Congress passed another tax 'patch' to keep the AMT from affecting too many taxpayers. Only between 5 and 10 percent of tax filers are expected to have to pay it.
Operating like a separate tax system, those subject to the alternative minimum must do their taxes the regular way and second time under the AMT rules with the government taking whichever figure is larger.
Generally, a taxpayer must pay the AMT if his taxable income, plus any adjustments that apply, total more than the AMT exemption amount.
'The whole idea of the thing is not bad, but the problem is this was done a very long time ago and all the numbers in there are just fixed numbers. When this thing was passed, $50,000 a year was a big income,' said Rich Bitter of R.H. Bitter & Associates tax service of Toledo.
'Today, $50,000 a year, especially for two people, is not a lot of income. They don't have the cash to set up tax shelters,' Mr. Bitter said.
The new exemption limits for 2008 are $46,200 (up from $44,350) for singles and $69,050 (up from $66,250) for married couples filing jointly. It is $34,975 (up from $33,125) for a married person filing separately.
A key difference between the regular tax and the AMT is that the latter does not allow for many typical deductions, such as state and local income, sales, and property taxes. All are allowable for regular tax purposes.
Without the 'patch' that Congress passed, the exemption limits would be $33,750 for singles, $45,000 for married couples filing jointly, and $22,500 for married people filing separately.
Generally, a gross income of $70,000 to $100,000 could trigger the AMT. But the alternative minimum can be triggered by a number of variables, such as claiming a general business credit.
Some taxpayers may not end up paying the alternative minimum, but are required to calculate it and submit an estimate on Form 6251.
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