April 14, 2005

"As my tax professor stated, it's Turbotax that is allowing the AMT to remain."

Great comments, leading up to that one, on this post from yesterday.

UPDATE: In the twenty minutes since posting that I figured out my AMT, and Turbotax would have spared me from having to feel very bad about this, I suppose. I feel bad about the federal tax for having the AMT and bad about the state taxes for being so high in the first place and for being the reason I owe so much on the AMT.

Rationally, I admit that it isn't fair for people in states that charge high taxes to get away with contributing less to the federal effort. Why should people in low-taxing states, deprived of the benefits of the local services more taxes would fund, have to pay a larger portion of the costs of the federal government?

Rationally, I know my real problem should be with the state taxes, yet the feds are irking me with their complicated forms. In which case, I really ought to use Turbotax, not only to avoid the aggravation of witnessing the AMT grinding out the extra thousands, but so that I won't irrationally blame the federal government for doing something that is actually fair. Or am I losing my mind?


Mark Kaplan said...

You could be losing your mind, but your AMT post is not proof of that. People who pay high taxes contribute more to the public purpose of running a state. People who make large contributions to non-profit organizations contribute more to the public purposes of those non-profits. There are good reasons for both of those categories to be deductions from income for both federal and state income tax purposes. If you contributed money to the State of Wisconsin out of your own volition that money would not get hit by the AMT. Because you are required to provide that money to the State of Wisconsin it does get hit by the AMT. That seems illogical to me.

Richard Fagin said...

Prof. Althouse, what I think should irk you even more is that taxpayers entering AMT-land can pay taxes mariginal rates higher than the truly well off. Personal deductions, itemized deductions and the AMT exclusion are phased out at certain adjusted gross income levels well below those of the top earning taxpayer. For adjusted gross incomes between about 200k and 500k, it is possible for the marginal tax rate to exceed 50 percent. All well and good if you believe that particular group of taxpayers shoud bear such a burden, but as one leaves the upper income end of AMT-land, the marginal rate effectively drops to the maximum regular income tax rate.

Popaghanda said...

I just wanted to say that my parents are Alumni of Madison Wisconsin. They will be thrilled to know that activists are still present on the campus to stand up for the little things. Keep fighting the good fight, and keep Madison an awesome place.

Ann Althouse said...

Mark: I am part of the democratic process here in Wisconsin and capable of having my share of the effect on legislative outcomes here. In which case, I am getting what I deserve.

Richard: Marginal rates on what? Isn't the point just that I'm losing the ability to deduct things? My posts suggests it is fair to deprive me of these deductions.

Popaghanda: always nice to hear from alumni and their relations. Not sure if I'm actually really fighting anything. I thought I was kind of knuckling under.

lindsey said...

You're not alone in bemoaning the amount of time it takes to do taxes:

"People scurrying to meet Friday's tax deadline might consider this: It's taking you and your fellow Americans 6.6 billion hours to do all that paperwork."

Richard Fagin said...

Prof Althouse, sorry for the confusion. Marginal tax rate is the rate of additional tax paid on the last increment of total income, or, the amount by which your total tax bill increases for each addtional dollar of income. Depending on your taxable and/or adjusted gross income, you pay both additional tax on each additional dollar of income over a tax-code stated threshold (shown in the tax rate schedule), but in some income brackets, personal exemptions, then AMT income exclusion and the amount you can actually deduct from your itemized deductions is phased out. Typically, you lose on the order of 25 cents of each of the foregoing deductions for each additional dollar of income when you get into the "phaseout" bracket. The phaseouts, combined with the stated tax rate, combine to increase your tax bill by as much as 50 cents for each dollar of additional income. Your $10,000 raise next year (I'm lobbying for you) may only put $5000 in your pocket.

Check out today's opinionjournal.com (or the Wall St. Journal)- there is a timely editorial on the subject of the AMT.

Federal Income Tax was my favorite subject at law school, particularly for a then 42 year old who had owned his own business. Sitting there in class with the 23 year olds who couldnt figure out a form 1040EZ made me think, "I'm gonna get an A in this class!" (I did.) Sure made up for the C in Contracts. Happy April 15th!

John Thacker said...

The cumbersome part of the forms is filling out your taxes twice, in order to see which is more. The AMT itself is less complicated than the regular taxes.

Having certain deductions phase out at a certain income rate raises marginal tax rates at those income. Cutting taxes for people who make below those amounts means that the tax rate suddenly jumps for those people who make right over the phase-in amount.