Beware The AMT
The Alternative Minimum Tax needs to go.
Okay, that will never happen, so let me rephrase that: It needs to be reformed, adjusted, and probably indexed going forward.
Ugh. I used the term “going forward.” That’s like something right out of buzzword bingo. Very sad.
Anyway, via The Ranting Raven, it turns out that strange things can happen when you declare as income your loot from a court case.
First, if you’re over what is now a quite modest gross income, you have to compute AMT and pay that if it’s more. It’s supposed to close loopholes for “the rich,” who greedily use all the tax avoision they can muster, so that they can keep what is rightfully the government’s. Thus it pretty much takes away deductions and recoups a larger share of the government money the taxpayer would otherwise have tried to horde shamelessly.
The problem is, when you win a bunchabux in court or via a settlement, the legal fee is part of your cost of “earning” that money, just like any business expense. Under AMT, they are not an expense, and you pay money on the whole thing, including what it cost you in legal fees. Which is grossly unfair on the face of it, since the lawyers then also have to pay tax on whatever they net out of their share of your winnings. But if the legal fees are a sufficiently large proportion of the total, you can wind up owing more money than you made. Shades of the options nonsense that came to the fore when people ended up with worthless dotcom options during the bubble and owed more in paper taxes than they’d ever be able to pay.
How bad does it have to get before things reform completely?
It’s got to get worse than it is now. Not enough people are affected by it. The AMT is an abortion and it should have been abolished years ago.
But that’s government. Once even a STUPID law is in place, it’s like pulling teeth to get rid of it.
Posted by Acidman on 02/17 at 05:10 PMThe thing about every nagging horrr, big or small, in the tax code, is that you can never get rid of them piece by piece, since there’s an interest and a well-paid lobbyist behind each of them. You can only do it via a comprehensive rewrite of the whole fucking IRC. That may well just be in the cards sometime in the rest of GWB’s term.
Posted by on 02/21 at 09:18 PM
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