Contributing Author: Jim Young
In 1969, the alternative minimum tax (AMT), was established. It has been controversial in tax law since then. AMT is a tax that takes away many tax benefits that were received in computing regular income tax liability. This creates confusion for taxpayers. By providing tax credits and deductions against regular taxes for oil and natural gas investors, Congress encourages taxpayers in oil and natural gas ventures. However, the AMT takes some of these benefits out, which decreases the incentive to invest.
The Tax Cuts and Jobs Act of 2017 abolished the corporate AMT. Many taxpayers hoped that the individual AMT would be also repealed. The individual AMT was not repealed. The AMT was initially applied to approximately 20,000 people in 1969. This number rose to more than 5,000,000 in 2017. The AMT increases tax complexity and burden for many taxpayers. Critics of AMT argue that it does not affect only high-income taxpayers as originally intended. It now affects many middle-class taxpayers.
The Tax Cuts and Jobs Act of 2017, which took effect on January 1, 2017, made significant changes to the AMT. The AMT exemption was raised by $4,000 for couples and $3,000 for individuals. In 2018, the AMT will not apply for a married-filing joint return (individual return), unless AMT income exceeds $191,000. These modest increases were not significant, but the thresholds for AMT phase-out increased to $1 million ($500,000). Many middle-income families who were previously subject to the AMT will be able avoid the individual AMT in 2018. The Joint Committee on Taxation estimates that the AMT changes will reduce federal revenues by $637.1 trillion over the next ten year’s compared to the prior law.
Students Can Discuss These Topics
Why did you think that the corporate AMT was repealed, but the individual AMT was not?
The AMT’s goal is to ensure that all high income taxpayers pay at most some federal income tax. Please describe a method that would meet this objective, but that is significantly simpler than the AMT.
Are you convinced that the Tax Cuts and Jobs Act 2017 has effectively repealed individual AMTs? Why or why not?
Ideas for Class Assignments
Five examples of tax credits or deductions that are allowed for regular tax purposes but not for AMT should be provided. Each one should be accompanied by a description of how the AMT preference or adjustment might impact the industry that is affected by the tax item.
Assign a student to debate the following issue with a group or student: The individual AMT has a positive impact on the growth of small- and medium-sized businesses in the United States.
Write a letter to your Senator or House representative expressing concern about the current rules regarding the individual AMT.
Resources
Republicans Know This Tax is an “Abomination”. So, Why is it Still in Their Bill?
Was the AMT Effectively Removed?
The Alternative Minimum Tax is no longer as effective as it was
SWFT CHAPTERS
Chapter 12: SWFT Individuals
SWFT Comprehensive: Chapter 12
SWFT Essentials: Chapter 17
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