AMT reform options include possible change in SALT deduction

Senators Charles Grassley (R-IA) and Max Baucus (D-MT) have introduced legislation to completely repeal the Alternative Minimum Tax, without requiring any offset of tax revenue from another source. Other lawmakers are mulling the possibility of trading the revenue from the AMT for a change in another area of individual income tax that would result in replacing the AMT revenue.

The U.S. Senate Finance Committee, headed by Baucus and with Grassley as its top Republican member, began hearings this week focusing on the AMT issue with the resolve of at least providing a temporary patch to the looming AMT crisis, if not providing an actual cure.

The AMT was created to ensure that people earning more than $200,000 per year pay their fair share of taxes by limiting the amount of deductions and credits allowed against the income of these wealthy taxpayers. There is an AMT exemption that keeps lower income taxpayers from being subject to this tax. However, the exemption amount has not been adjusted for inflation.

In recent years, Congress has voted for a temporary patch to increase the exemption amount and allow certain credits so that middle income taxpayers are not affected by the AMT. In 2006, about four million taxpayers paid the AMT. The temporary patch for 2006 has expired, and no new patch was enacted for 2007. Without any legislation, it is predicted that about 23 million taxpayers will have to pay the AMT in 2007.

The Tax Policy Center, a joint venture between the Brookings Institution and the Urban Institute, suggests that for 2007, a family with $75,000 in income and four children will owe an extra $1,997 in federal income tax, and possibly owe penalties on that amount as well.

Toying with the deduction for state and local taxes (SALT) seems to be a favorite talking point among some lawmakers who are looking for a way of making up revenue if the AMT is changed or repealed. Suggestions have included turning the SALT deduction into a credit, or doing away with the deduction altogether. Other options being considered include a four percent surtax on couples with incomes above $200,000 per year and on single taxpayers with income above $100,000 per year. Talk of a flat tax is also resurfacing.

You may like these other stories...

The head of the IRS has a message for taxpayers and tax preparers who have endured long wait times while on the phone with the tax agency: Call your member of Congress.During his keynote speech at the 69th Annual Meeting of...
Regulators struggle with conflicts in credit ratings and auditsThe Public Company Accounting Oversight Board (PCAOB), which was created by the Sarbanes-Oxley Act in 2002, released its third annual report on audits of...
Could the IRS disallow Ice Bucket Challenge charitable contributions?Unless you’ve been living under a rock, you’ve probably heard of – or participated in – the ALS Ice Bucket Challenge.I was...

Already a member? log in here.

Upcoming CPE Webinars

Aug 26
This webcast will include discussions of recently issued, commonly-applicable Accounting Standards Updates for non-public, non-governmental entities.
Aug 28
Excel spreadsheets are often akin to the American Wild West, where users can input anything they want into any worksheet cell. Excel's Data Validation feature allows you to restrict user inputs to selected choices, but there are many nuances to the feature that often trip users up.
Sep 9
In this session we'll discuss the types of technologies and their uses in a small accounting firm office.
Sep 11
This webcast will include discussions of commonly-applicable Clarified Auditing Standards for audits of non-public, non-governmental entities.