Written by: Keith Frame, CPA
While public figures and the media have been talking up the potential damage to the economy as a result of the “Fiscal Cliff” which we bump up against on January 1, 2013, there is another quietly simmering stealth tax increase waiting to surprise millions of taxpayers when they prepare their 2012 tax returns.
If Congress fails to act to increase the exemption for the Alternative Minimum Tax (AMT), projections are that more than 30 million taxpayers will be hit with thousands of dollars in additional tax in 2012.
As you might recall, the AMT was created back in 1970 ostensibly to make sure that everyone pays his “fair” share of tax. The law was passed after it became known that a few very wealthy individuals in the late 1960’s did not owe any income tax as a result of deductions, credits or other tax benefits. The tax was designed at the time to apply only to the wealthiest among us.
Unfortunately, the AMT exemption was not indexed for inflation. So, 40 some years later, the tax is applying to a whole bunch of people it was never intended to. Thankfully, Congress has increased the exemption each year for the past several years, in effect, giving the law the benefit of being inflation-adjusted.
It is unclear at this late date whether Congress will act to reduce the widespread application of the AMT to millions of new taxpayers in 2012. Congress has a lot on its plate – but doesn’t seem to have the will or the votes to do much. With the multitude of issues to address and the short time frame in which to act, all taxpayers should be concerned.