I read recently that the IRS estimates that married couples with two children that have a combined income of $75,000 to $100,000 USD and are subject to the Alternative Minimum Tax will spend 63 hours to complete and compute their tax return!
63 hours! Hmm. The way I figure it, if a couple works 4,000 combined hours a year (2 people x 40 hours x 50 weeks), their time is worth between $18.75 an hour and $25.00 an hour in this income category. Now multiply that by 63 hours and you get $1,181.25 to $1,575.00 worth of time.
If it wasn’t for the possibility that I would get audited annually for the rest of my natural life, I would suggest that these couples send an invoice to the IRS for the time invested in this endeavor. Invested? Spent? Wasted? I’m not sure what word fits, but obviously many of us find tax time rather taxing.
For those of you not familiar with the Alternative Minimum Tax, and from what I understand there are many amongst us, here is a little primer.
The alternative minimum tax affects a growing percentage of taxpayers. When it applies, the cost can be substantial. This tax is so complicated, that it’s often difficult to predict when it will apply. It also may be necessary to do AMT calculations even in years when the AMT doesn’t apply. Ouch.
The AMT is an extra tax some people have to pay on top of their regular income tax! I’ll try not to put “Ouch!” in this article too many times, but remember, the idea behind this tax was a good one. Essentially it is designed to prevent people with high incomes from using loopholes to get around paying any taxes whatsoever.
Figuring out if you are required to “partake” in the AMT is based on comparing what you pay in taxes to what the alternative rules suggest a person with your income should be required to pay. If you pay more already than what you would pay under the AMT calculations, you are simply not eligible. If you pay less than what the AMT calculations suggest you should be paying, then you are a candidate.
The way that’s done is by figuring the amount of tax you would owe under the AMT rules. The AMT rules differ from the existing rules in that various tax benefits and write-offs are non-existent or reduced. Some of us can get a special deduction called the “AMT exemption,” which is designed to prevent the AMT from applying to taxpayers with modest incomes. This deduction phases out when your income reaches higher levels. You calculate the tax using AMT rates, which start at 26% and move to 28% at higher income levels. By comparison, the regular tax rates start at 10% and then move through a series of steps to a high of 35%. The result of this calculation is the amount of income tax you would owe under this AMT.
Wasn’t that simple. No? Well there is lots of info out there on the AMT and lots of on-line services to help you muddle your 63 hours away.
Here at PROFIT CONFIDENTIAL, we have collectively decided to hand this onerous task over to a professional. We are going to use our 63 hours trying to figure out how to move up a bracket.