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#777857 - 03/11/05 07:12 AM Alternative Minimum Tax? What is it?
Nina Offline
6000 Post Club Member

Registered: 08/13/01
Posts: 6467
Loc: Phoenix, AZ
Boy, you can tell that April 15th is coming up.

What is the alternative minimum tax? I've never really understood it. When I "retired" (e.g., quit work) I cashed out beaucoup stock options, which caused the AMT to kick in. It was all planned and my accountant and financial planner types all said it was a good thing because this year I might actually get some of it back... but I honestly don't know what it is, what they are talking about, etc. I trust them and when they explain it I get a light bulb moment of understanding, but then it dims and goes out within 2-3 days.

Any explanations would be great... not necessarily about my particular situation, but what AMT is in theory and practice.

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#777858 - 03/11/05 07:15 AM Re: Alternative Minimum Tax? What is it?
JBryan Offline
9000 Post Club Member

Registered: 01/19/02
Posts: 9798
Loc: Oklahoma City
It is aimed at rich people who accumulate enough deductions that they owe little or nothing. It's Uncle Sam's way of saying, "not so fast, buster!"
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#777859 - 03/11/05 07:18 AM Re: Alternative Minimum Tax? What is it?
jon-nyc Offline
2000 Post Club Member

Registered: 02/09/05
Posts: 2022
Loc: the left bank -- of the east r...
A few decades ago there was something of a scandal after it was revealed that a goodly number of wealthy people paid little or no tax, thanks to countless deductions and loopholes.

In response, congress created the 'Alternative Minimum Tax'. The idea was for there to be an alternative tax calculation which would guarantee that people paid at least some tax. You could think of it as a 'top down' approach to closing loopholes.


The problem was they never indexed the income amounts that kick in the AMT. So while it originally hit only the upper middle class and above, it now is reaching further and further down the income ladder.
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#777860 - 03/11/05 07:22 AM Re: Alternative Minimum Tax? What is it?
Kentcouncil Offline
Full Member

Registered: 06/18/04
Posts: 371
Loc: Great Lakes
 Quote:
Originally posted by jon-nyc:
The problem was they never indexed the income amounts that kick in the AMT. So while it originally hit only the upper middle class and above, it now is reaching further and further down the income ladder. [/b]
Absolutely, and there's little political impetus on either side of the aisle to fix it. So AMT will unfotunately become a fact of life for most taxpayers in the future. And you really do take a big hit from it.

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#777861 - 03/11/05 07:27 AM Re: Alternative Minimum Tax? What is it?
jon-nyc Offline
2000 Post Club Member

Registered: 02/09/05
Posts: 2022
Loc: the left bank -- of the east r...
You think KC? I've always thought that there's general recognition on both sides that, once it starts hitting more and more people, the political pressure to fix it will be decisive.
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If you don't talk to your children about equal temperment, who will?

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#777862 - 03/11/05 07:29 AM Re: Alternative Minimum Tax? What is it?
markjpcs Offline


Registered: 08/31/04
Posts: 3170
Loc: Wisconsin
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#777863 - 03/11/05 07:31 AM Re: Alternative Minimum Tax? What is it?
Cindysphinx Offline


Registered: 02/14/03
Posts: 6416
Loc: Washington D.C. Metro
Nobody on the planet understands it, Nina. No one.

That's why your financial advisors can't explain it in plain English. They have no idea what it is, either. They're just pretending they do because if they admitted the truth, you'd fire them! ;\)

Cindy -- who plugs the data into TurboTax, which runs some garbled AMT calculation, and who hasn't been hit with the AMT
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#777864 - 03/11/05 07:32 AM Re: Alternative Minimum Tax? What is it?
Cindysphinx Offline


Registered: 02/14/03
Posts: 6416
Loc: Washington D.C. Metro
Hee!

I knew Markj would be along presently to blow a gasket! \:D \:D

Hey Mark. I have a question.

Are your taxes too high? \:D \:D

Cindy -- indulging her sadistic streak
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#777865 - 03/11/05 07:43 AM Re: Alternative Minimum Tax? What is it?
Kentcouncil Offline
Full Member

Registered: 06/18/04
Posts: 371
Loc: Great Lakes
 Quote:
Originally posted by jon-nyc:
You think KC? I've always thought that there's general recognition on both sides that, once it starts hitting more and more people, the political pressure to fix it will be decisive. [/b]
Not with all our current budgetary concerns. Dubya wants to maintain his image as a tax cutter, not a tax raiser, but he knows he needs more tax revenue desperately. One way to raise taxes without seeming to is to quietly keep the AMT in place while is steadily applies to more and more people. We're talking hundreds of billions, potentially trillions, of dollars here. I think the Dems will also happily go along with this for as long as it slides under the radar screen.

You're right though; probably once it starts applying to the lower middle class, they may want to do something about it. Don't know when that's going to be.

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#777866 - 03/11/05 02:33 PM Re: Alternative Minimum Tax? What is it?
Jack Frost Offline
4000 Post Club Member

Registered: 12/10/03
Posts: 4454
Loc: Maine
Nina,

In a nutshell, it takes away what it considers excess deductions for taxpayers with what it considers excess income. Trouble is, it was never indexed for inflation so it is starting to hit people in the middle class. Some deductions are still sacrosanct--like home mortgage interest--but others can be eaten away by the AMT.

It stinks.

jf
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#777867 - 03/11/05 03:36 PM Re: Alternative Minimum Tax? What is it?
Jeffrey Offline
2000 Post Club Member

Registered: 04/18/04
Posts: 2948
Loc: New York
Nina - Some, and only some, of what is said above is true regarding the AMT.

However, your AMT seems to come specifically from exercising stock options. Some, but not all, types of stock options, have an additional set of AMT rules that apply only to options. These rules are not what are described above. There are also special "recapture" ("get some of it back") rules that apply to certain stock options exercised according to certain very specific rules.

These rules are very complex. In my experience most accountants don't fully get them and we have to help the accountants. Doing this the right way or the wrong way can mean hundreds of thousands or even millions of dollars of difference, in my personal experience. I am glad you have financial and tax advisors you trust to help guide you here.

Try calling them again this tax season to have them go over it with you again. And do not be too hard on yourself if you don't fully follow - most accountants don't get it either, unless they have a lot of clients with a certain type of stock option.

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#777868 - 03/11/05 06:31 PM Re: Alternative Minimum Tax? What is it?
Nina Offline
6000 Post Club Member

Registered: 08/13/01
Posts: 6467
Loc: Phoenix, AZ
Jeffrey-- I think you're on to something. The bulk of my options were something called "ISO," which I'm pretty sure stands for "incentive stock option." At the end of the run they switched to "NQ," (non-qualified). At that point I know my tax chick breathed a sigh of relief because the NQs weren't going to be affected by AMT.

There is definitely a "recapture" option, but I'm still waiting.... ;\)

"They call it trickle down, but I ain't been gettin' wet!"

If my tax accountant saw me refer to her as my "tax chick" she'd die. She is the most professional, pulled-together woman I've ever met... \:\) \:D

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#777869 - 03/11/05 06:56 PM Re: Alternative Minimum Tax? What is it?
Jeffrey Offline
2000 Post Club Member

Registered: 04/18/04
Posts: 2948
Loc: New York
Nina - Yes, the AMT applies in a certain way, and with complicated recapture rules, to ISO options. One of our main specializations are corp execs with complicated stock options.

There are various ways to co-ordinate the exercise of ISO and NQ options, based on the tax year, the client's current AMT exposure, and the outlook for the stock. These issues became even more difficult after the 2002 Bush tax bill. I should think your financial and tax advisors would be happy to go over your situation with you again, so you are comfortable with your strategy.

What company did you work for?

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#777870 - 03/12/05 05:26 AM Re: Alternative Minimum Tax? What is it?
miseenplace Offline
Full Member

Registered: 01/16/05
Posts: 197
Loc: Minnesota
AMT is the IRS's punishment for people who do everything right and follow all the rules.
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#777871 - 03/12/05 06:03 AM Re: Alternative Minimum Tax? What is it?
Jolly Offline
Yikes! 10000 Post Club Member

Registered: 06/20/01
Posts: 14051
Loc: Louisiana
AMT.

A tax for folks like Bill Gates...

and Nina?!
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#777872 - 03/12/05 08:24 AM Re: Alternative Minimum Tax? What is it?
Nina Offline
6000 Post Club Member

Registered: 08/13/01
Posts: 6467
Loc: Phoenix, AZ
Well, I've actually met Bill Gates but we're not really running in the same country club set! ;\)

"Met" should be interpreted loosely here... we shook hands at a professional shindig. That counts, doesn't it? \:D

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#777873 - 03/12/05 08:29 AM Re: Alternative Minimum Tax? What is it?
seebechstein Offline
1000 Post Club Member

Registered: 11/23/04
Posts: 1085
Loc: houston
Maybe we could say that if you paid AMT in the 60s and 70s you were upper class, and if you pay it now you're middle-class?

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#777874 - 03/12/05 08:37 AM Re: Alternative Minimum Tax? What is it?
jon-nyc Offline
2000 Post Club Member

Registered: 02/09/05
Posts: 2022
Loc: the left bank -- of the east r...
 Quote:
Originally posted by seebechstein:
Maybe we could say that if you paid AMT in the 60s and 70s you were upper class, and if you pay it now you're middle-class? [/b]
LOL!
_________________________
If you don't talk to your children about equal temperment, who will?

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#777875 - 04/21/05 01:15 PM Re: Alternative Minimum Tax? What is it?
plays88skeys Offline
3000 Post Club Member

Registered: 01/08/04
Posts: 3091
Loc: Richmond, VA
Just found this thread. I got slapped with the AMT this year as well. The thing that really stinks was that the distribution of the capital gains from the sale of real estate was set up so I got half in 2004 and half in 2005...in an attempt to avoid the AMT. Didn't work.

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#777876 - 04/21/05 01:26 PM Re: Alternative Minimum Tax? What is it?
Nina Offline
6000 Post Club Member

Registered: 08/13/01
Posts: 6467
Loc: Phoenix, AZ
Eeeew! I know a few other folks who got nailed with AMT this year. I was actually able to use some of my old bizarro stock AMT "credit" to offset this year (don't ask me how, but I'd be happy to give you the name of my tax chick \:\) )... so we ended up with a refund from the feds that was almost exactly what we owed to the state.

All in all, a wash. I WON!! \:D \:D \:D

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#777877 - 04/21/05 01:29 PM Re: Alternative Minimum Tax? What is it?
ChickGrand Offline
3000 Post Club Member

Registered: 05/02/03
Posts: 3243
Loc: Midwest U.S.
 Quote:
Originally posted by plays88skeys:
...Didn't work. [/b]
I'm still making monthly installments on 2002.
Also .


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