The end of this election year will bring some last minute tax confusion and CPAs should gear up for an influx of calls come January. Since this has been an election year, some of the problems surrounding the Bush Tax Cuts have been less news worthy; not less important.
There were many articles which came out during the summer warning about the expiration of these cuts which tax payers have become accustomed to receiving. Congress was not able to come to a solution before the elections, and now that the votes have been cast, the pressure is on to work out potential tax problems for the middle class.
The alternative minimum tax (AMT) is the latest worry for those tax payers who fall into the upper middle class tax bracket or higher. The AMT may have people paying more than their regular tax income. It was originally created for the upper class who used deductions and tax benefits to get out of paying all their liabilities. Basically the AMT is a flat tax amount based on your earnings’ bracket. If your regular tax is less than the AMT, an individual will have to pay the difference. For example, if the AMT is $5000, but your taxes has you paying $3500, you will owe the IRS $1500 more. If your taxes end up being more than the AMT then you will not have to pay any extra.
Congress needs to quickly act before the year is up to keep this AMT from landing into households with an annual income larger than $75,000. It is in addition to all the other tax credits which will expire at the end of December. There are many which have already passed expiration, but there are numerous others which will leave individuals scrambling for ways to help their tax liabilities. Local CPAs will have their phones ready once people realize how much they relied on the tax credits.
An average person uses their IRS refund to catch up on bills. These same people will be scrambling to find other solutions or in many new cases, finding money to pay new tax liabilities. It is predicted that one in five taxpayers may be affected by the AMT starting in January.
Tax Advisors will have their phones ready for the influx of taxpayers seeking assistance this net tax season. If Congress is not able to prevent the AMT from going into place, it will be close to impossible to make any changes for this next tax year. Once the tax season starts in January, it will be very difficult to lift the tax levy once set in motion. The IRS puts a set of rules in place at the start of the season, changing them after the tax game has begun will cause confusion and delays. Congress needs to solve the AMT problems before the end of the year.