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By Jason Alderman
Year after year, Congress keeps kicking meaningful income tax reform down the road. Consequently, taxpayers continue to be stuck with an archaic, overly complicated mess that pleases no one — except perhaps some tax accountants who charge by the hour.
A prime example is the dreaded alternative minimum tax (AMT). Enacted in 1969 to close loopholes that allowed wealthy taxpayers to avoid paying income taxes, the AMT has been tinkered with so much over the years that millions of middle-income taxpayers now get snared as well.
Historically, the biggest issue has been that while regular tax brackets, exemptions and standard deductions were adjusted annually for inflation, those used to calculate the AMT were not. Some years, Congress approved one-time “patches” to the AMT income exemption amount so fewer people had to pay AMT — usually at the last minute. The Tax Payer Relief Act of 2012 finally made the inflation patch permanent.
Many people never realize they’re subject to the AMT until they get a letter from the IRS saying they owe additional tax — plus interest and penalties. So it pays to know how the AMT works.
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