AMT Patch - Does it apply to you?
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After months of political banter and posturing, Congress has finally signed off on the most recent Alternative Minimum Tax (AMT) Patch. The question on everyone's mind is blatantly obvious...
Am I getting the shaft this year?
Quick answer, whatever happened to you last year will likely happen this year. Meaning that another band aid fix was thrown together last minute by our fearless leaders (yea right!) in Washington DC.Do I Need to Worry?
If you spend any time reading financial topics you probably know something about the AMT. However, If you are like most Americans, you just glance over it and worry about it between the months of January to April each year. Don't believe me? Ask 3 of your friends what is the minimum salary requirements to avoid the AMT for the 2007 tax year and try not to laugh at their clueless faces.
Since we brought it up, the salary requirements for single taxpayers is $44,300 and married couples are $66,250 respectively, which is up slightly higher than 2006. So if you fall under these salary minimums, you're in good shape and most likely are free and clear of the AMT.
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What to Expect?
For those who will be affected (including me), expect your deductions to be targeted again this year. Those who will be most affected are the married couples with 2 or more children. I'm not married or a parent at this time, but I would think being married and having 2 or more kids would affect my position on this subject.
The most obvious exemptions that will be affected are:
- Dependent Children
- Past Income or State Taxes
- Home Interest
- Property Taxes
- Home or Small Business Expenses
- Medical Expenses
- Green Living Incentives
Remember all those deductions used to "sell you" on upgrades or installing new technologies? They may be reduced or potentially eliminated due to the AMT's original purpose.
When the AMT was first created, the objective was to eliminate specific deductions used by wealthy individuals to shelter their assets. Ironic that we now have a complete role reversal and America's middle class are footing the bill.
Can I Play Damage Control?
Being that the AMT negates many tax breaks that the middle class enjoys under the regular code, there aren't many actions the average citizen can take. The best tactic to avoid the AMT, in my opinion, is to defer as much of your income into a pre-tax retirement vehicle such as a 401k. This way, you reduce your income tax liability as well as increase your chances of a financially secure retirement. If you receive an employer 401k match contribution, you are essentially paying yourself to avoid taxes.
How does that sound? Getting paid to NOT pay taxes!
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