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Thread: Now I know why...

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    God/dess VenusGoddess's Avatar
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    Default Now I know why...

    Wealthier people turn republican. We just got "hit" with the AMT. Paying almost $30,000 in taxes and we can only get $10,000 back. WTF? When I made $50,000 a year, I got $10,000 back...now we make a little more than double that and we can get the same amount?

    Why isn't the AMT recalculated to rise with the average wage increase? More and more people are getting hit with this AMT that the AVERAGE family is losing out on saving a lot more money. While "wealthy" 40 years ago was considered making more than $50,000 a year, that has now become what it takes to SURVIVE in this country. It's not wealth...it's low-middle income. WTF?

    I know about tax-free investments, but Scorp's job requires a full write-off on a lot of stuff (non-reimbursible stuff that he pays throughout the year). A lot of this stuff won't come off, now because of the stupid AMT. We pay our share of taxes, but...DAMMIT!!!

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    Banned Melonie's Avatar
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    Default Re: Now I know why...

    Welcome to 1/2 of the gov't's great "secret'' regarding how future budget deficits will be reduced on the backs of the 'middle class'. When the AMT law was originally passed, it was intended to only apply to something like the top 1% of wage earners. However, the dollar amounts of AMT income thresholds specified 20 or whatever years ago which applied to the top 1% at that time have now, through US$ inflation, begun to apply to the top 5% of wage earners. Next year it is probable that the dollar amounts of AMT income thresholds will apply to closer to the top 10% of wage earners.

    The second half of the 'secret' is that AMT limits overall deductions and not specific ones. Thus people who live in typically 'blue' states with very high state income and property tax rates and very expensive housing will quickly reach the AMT limit on these deductions alone, leaving most other deductions in a position of being thrown overboard by the AMT. However, people earning exactly the same amount of money in typically 'red' states with much lower (or non-existant) state income and property tax rates and more affordable housing will not only save on the cost of state income tax, property tax, and mortgage payments, but they can also write off much higher amounts of deductions from other sources before banging into the AMT limitation.

    The 'tin foil hat' argument is that residents of typically 'blue' states have been underpaying on their federal tax obligations for decades, because they were able to deduct the state income and property tax they paid from their federal tax obligations. The AMT effectively neutralizes the 'subsidy' formerly provided to 'blue' state federal taxpayers by 'red' state federal taxpayers who lacked such deductions, and now allows the 'blue state' taxpayers to shoulder their 'fair share' of federal tax. The AMT also effectively eliminates the 'disguise' that the federal tax deduction 'subsidy' provided as to exactly how high some state tax rates have now become !

    You didn't think that tens of thousands of people were leaving states like California in favor of Nevada and leaving New York in favor of Florida just because they wanted a change of scenery ? Accountants have been running inflation and AMT tax models, and have been warning of the MAJOR impact this year's AMT was going to have on 'blue' state 'middle class' taxpayers for a couple of years now.

    As you pointed out but weren't clear on the distinction, 'wealthy' Americans can actually avoid a large portion of the AMT impact. This is possible because the 'rich' can structure their income stream in the form of dividends rather than as wages or self-employed earnings, they can afford the big buy-ins to get into tax exempt instruments with decent rates of return, they can afford to swing their private jet past the Cayman Islands bank every few months, they can afford the big buy-ins to enter into tax favored 'private' investments like wind farms etc. It is not the John Kerrys and Michael Bloombergs and Barbara Streisands of the world who are getting slapped with the AMT (or who are motivated to lean Republican LOL). Instead it is 'middle class' white collar working people with 'decent' incomes who now take the biggest beating from the AMT, and particularly those who are living in high tax rate 'blue' states, just like you and me !

    PS the latest 'tin foil hat' speculation is that 'middle class' white collar working people with 'decent' incomes, once hit with the AMT, will quickly figure out that paying home mortgage interest and property taxes is de-facto no longer tax deductible if they live in a high tax rate 'blue' state, as these deductions wind up causing tax deductions from other sources to be thrown overboard by the AMT ceiling. Thus it is speculated that many of these people will decide to sell their homes and become 'luxury' renters in the near future instead, as their de-facto cost of home ownership will now increase by whatever value those mortgage interest and property tax deductions previously had.

    prior discussion at
    ~
    Last edited by Melonie; 01-31-2006 at 10:32 AM.

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    Default Re: Now I know why...

    The tax code assumes if you are making $100,000 a year you are making too much and are wealthy. The problem of course is you are not making $300,000 a year. Then you would get a break and could use some tax planning and professional planning. The average family income in the US is about $34,000. Maybe Melonie can confirm or deny that. Data was
    about 2004. I might have got it mixed up with the median income. If $34,000 is correct
    that's why the tax code is the way it is on your $100,000.

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    God/dess VenusGoddess's Avatar
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    Default Re: Now I know why...

    *sigh*

    I really didn't know how bad the AMT was going to be until it happened to us. Yes, Scorpio made a nice chunk of change this year, but with his job, he pays so much that is not reimbursable. It was always a write-off...and that has given us back so much money that we didn't use for personal stuff. It just pisses me off that "the powers that be" let such old and out-dated laws prevail.

    I think it's time for me to start talking loudly to my senator and congressperson. This is ridiculous...and the fact that this is not about "wealthy" people, but about people who are middle-class...getting hit so hard with the taxes.

    We should have gotten around $15k+ back, but with the AMT, we got cut-off at $10,000. We can't deduct our mortgage, our property taxes, and we won't be getting "credit" for the amount of money spent on the car Scorpio drives for work (he puts approximately 25,000 miles PER YEAR on his car) for maintenance, up-keep, tolls, gas (insane), and oil changes (about 1 every month to month and a half).

    I know that we're on the extreme side, but what about a family who has 3-4 kids? They'd be losing a write-off of almost $3,200 PER PERSON!! WTF?

    *sigh* This is just a rant...but, we've got to start working on moving more money around in investments.

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    God/dess VenusGoddess's Avatar
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    Default Re: Now I know why...

    Quote Originally Posted by Niceguy
    The tax code assumes if you are making $100,000 a year you are making too much and are wealthy. The problem of course is you are not making $300,000 a year. Then you would get a break and could use some tax planning and professional planning. The average family income in the US is about $34,000. Maybe Melonie can confirm or deny that. Data was
    about 2004. I might have got it mixed up with the median income. If $34,000 is correct
    that's why the tax code is the way it is on your $100,000.
    The average is about $44,000 - $48,000.

    $100,000 is a lot of money...however, when $30,000 of that money goes to taxes, and then another $15,000 goes for job related, non-reimbursible expenses, Scorpio is bringing home around $65,000. For most people that may not be too bad, but in this day and age...that's "just enough" to live comfortably. We don't live it up with insane amounts of travel, high-end clothing shopping sprees every week...we have nice things and we live within our means, but dammit...

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    Banned Melonie's Avatar
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    Default Re: Now I know why...

    Again the central point is being missed. In typical 'blue' states like NY or IL or CA, average income levels approach $50,000. In typical 'red' states like MS or TX or OK, average income levels are more like $35,000. Because of higher tax rates, higher real estate prices etc. a person with the average $50,000 income in one of these 'blue' states basically achieves the same standard of living that the average 'red' state earner can achieve with a $35,000 income. But the AMT begins to bite 'blue' state earners who are slightly above average on the basis of total dollars of taxable income versus total tax deductions, while leaving 'red' state residents with slightly above average earnings alone - and for a reason. For years, the 'red' state residents have been paying higher federal tax rates because they did not have high state income taxes, high local property taxes and high mortgage interest to deduct on their federal tax returns while 'blue' state residents did.

    The effect of a non-indexed AMT has now been to remove the subsidy previously enjoyed by 'blue' state residents and paid for by 'red' state residents in terms of federal taxes. It should now become very clear that if $65,000 income is required to live 'comfortably' in a 'blue' state whereas it's possible to live just as comfortably on $50,000 in a 'red' state, the major reasons have next to nothing to do with federal tax rates but have much to do with state income taxes, local property taxes. local sales taxes, local real estate prices etc. Thus even though I'm a 'blue' state resident and am getting hit by the AMT as well, I'm forced to voice a 'devil's advocate' opinion. If 'blue' state residents don't like the AMT, or in other words they don't like losing their federal tax subsidy which was previously being paid for by overtaxing 'red' state residents, don't bother complaining to the US congress. 'Blue' state voters are now in a minority, and there is no way that 'red' state residents are going to agree to start subsidizing 'blue' state residents again. Instead you might try beating on state and local officials to control their spending, so that your state and local taxes will be reduced.
    ~
    Last edited by Melonie; 01-31-2006 at 09:42 PM.

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    Default Re: Now I know why...

    At the risk of sounding like an idiot, what is the AMT? I asked a CPA about the benefits of incorporating and he said when you make $70 or $80k a year it starts to help you save money. Would that help with whatever AMT is?

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    God/dess VenusGoddess's Avatar
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    Default Re: Now I know why...

    ^ yes!

    AMT = Alternative Minimum Tax

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    Default Re: Now I know why...

    ahhhh....I'm going to have to check into the incorporating thing. Hopefully I'll make enough this year for it to make a difference.

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    Default Re: Now I know why...

    Like I have said before, I sure ran out of California due to the taxes. Someone offered me a job out there again and I thought about it - but ya know - ya need to make so much to just make it there - yet if you make it they take so much away - which means you need to make more - which means they take even more away.

    So to make all that you need to add or create value ($100,000+ or 80K to break even) that someone else around the world can do with $30,000 and a lot of industry backing (aka India and Computers.) I mean think of it this way - if your trying to create added value competing with someone with half the costs - and THEN on top of that the government YANKS 30% of that value add... you are working your ass off to pay the government and do 4x to 5x more than the indian... for less and less reward.

    I'm sorry, but the numbers just don't work (for me) to live and work in California (and other such states) anymore.

    That is what the corporation is for - all income comes to it - all the expenses I can make come out of it (I am writing on my "work" computer right now) reduces that income - the result goes to my wages and then I pay taxes on it.

    But I am coming more and more to believe that the country is going bankrupt. Sure there are plenty of people in the top 1% who are going to do just fine when the stock market rallys - but lets face it - a stock market rally use to mean more investment was coming to US assets - US workers, US factories, etc. The stock market is no longer a leading indicator for the US worker I believe.

    I am seriously making plans to retire outside the US. Perhaps by that time the US will be a third world nation and the dollars I hold will be useless. I don't know. But if the US dollar remains strong, I may simply be priced out of retirement in the US. I see all these baby boomers who can't afford to retire. Go buy a small villa in Trinidad or something and hang out on the beach.

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    Banned Melonie's Avatar
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    Default Re: Now I know why...

    But I am coming more and more to believe that the country is going bankrupt. Sure there are plenty of people in the top 1% who are going to do just fine when the stock market rallys - but lets face it - a stock market rally use to mean more investment was coming to US assets - US workers, US factories, etc. The stock market is no longer a leading indicator for the US worker I believe.
    again resorting to a 'tin foil hat' conspiracy theorist opinion, some would say that the US 'middle class' is already bankrupt ... they just haven't realized it yet. Statistics just released confirm the fact that Americans spent more money than they actually earned again in the 4th quarter ! See The last time Americans spent more than they earned for a sustained period of time was in 1932-33 during the depths of the great depression ! However, the very rich are doing just fine (in fact, better and better), and the social benefit eligible poor are doing just fine too (since the gov't i.e. the 'middle class' taxpayer is picking up the tab for their medical, partial rent, partial utilities, partial food etc.)

    I am seriously making plans to retire outside the US. Perhaps by that time the US will be a third world nation and the dollars I hold will be useless. I don't know. But if the US dollar remains strong, I may simply be priced out of retirement in the US. I see all these baby boomers who can't afford to retire. Go buy a small villa in Trinidad or something and hang out on the beach.
    All I can say is ... you're not alone ! This appears to be a growing trend in parts of Mexico, Belize etc. Of course you've got all of the potential heavy-handed gov't issues and social strife issues to deal with, but then again things could potentially get pretty bad in particular parts of the USA as well in the future. However, the 'tin foil hat' crew would recommend getting out of the US$ RIGHT NOW to avoid loss of purchasing power of your retirement nest egg if/when US inflation kicks into high gear and the US$ exchange rate drops precipitously.

    I asked a CPA about the benefits of incorporating and he said when you make $70 or $80k a year it starts to help you save money. Would that help with whatever AMT is?
    According to my own accountant, the answer is yes, if ... with the if being that things must be structured correctly such that the avoided AMT on individual taxes is not washed out by additional corporate taxes being due instead. The trick appears to be that the corporation must take a 'sizeable' income and split it up into a smaller 'salary' plus a smaller 'dividend payment', and also that the corporation must take as many business related tax write-offs as possible so that there are a minimum of business related tax deductions on your personal tax return (which would otherwise push you into the AMT ceiling).

    Even so, if you live in a high tax 'blue' state where you're paying 7%+ in state income taxes and/or 7%+ in sales taxes, plus $3000+ in local property/school taxes, plus $7,000+ in home mortgage interest, it is going to be very difficult to avoid hitting the AMT ceiling.
    ~
    Last edited by Melonie; 01-31-2006 at 09:48 PM.

  12. #12
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    Default Re: Now I know why...

    Quote Originally Posted by VenusGoddess
    ^ yes!

    AMT = Alternative Minimum Tax
    AMT= Another Middle-Class Tax

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    Default Re: Now I know why...

    I mean think of it this way - if your trying to create added value competing with someone with half the costs - and THEN on top of that the government YANKS 30% of that value add... you are working your ass off to pay the government and do 4x to 5x more than the indian... for less and less reward.
    This point, although important financially, also raises deep and controversial issues involving political choices ... i.e. the cost burden of OSHA compliance, EPA compliance, providing health / housing / food / energy subsidies to unskilled and/or illegal residents vs. the same proportionate costs of doing business in India or China or Mexico ... a discussion that I've learned my lesson over and will not start again.

    However, as you point out, a significant differential does exist in the cost of doing business in the US vs India, China and Mexico, and particularly so in the case of US 'blue' states where the state and local taxes take an even bigger 'bite'.
    ~
    Last edited by Melonie; 01-31-2006 at 10:29 PM.

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    Default Re: Now I know why...

    Quote Originally Posted by VenusGoddess
    Wealthier people turn republican. We just got "hit" with the AMT. Paying almost $30,000 in taxes and we can only get $10,000 back. WTF? When I made $50,000 a year, I got $10,000 back...now we make a little more than double that and we can get the same amount?

    Why isn't the AMT recalculated to rise with the average wage increase? More and more people are getting hit with this AMT that the AVERAGE family is losing out on saving a lot more money. While "wealthy" 40 years ago was considered making more than $50,000 a year, that has now become what it takes to SURVIVE in this country. It's not wealth...it's low-middle income. WTF?

    I know about tax-free investments, but Scorp's job requires a full write-off on a lot of stuff (non-reimbursible stuff that he pays throughout the year). A lot of this stuff won't come off, now because of the stupid AMT. We pay our share of taxes, but...DAMMIT!!!
    VG, it sucks doesnt it.

    At my income level (middle 200's) I lose virtually all my personal and itemized deductions. '05 generated a flukey one time boost that kicked me over 300. Right now I see that Ive paid in around 82K in FIT and Im sweating bullets that it is enough to avoid a fine for underpayment.

    I suppose I should take comfort in the fact that my 80+K is supporting a couple of families....but I dont. After a month of 16 hour days its hard to have a good attitude.

    FBR
    Once again I have embraced my addiction and have put off the moral dilemma to another day.

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    God/dess VenusGoddess's Avatar
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    Default Re: Now I know why...

    I totally think Scorpio would agree with your last sentiment. LOL...

    It's hard parting with so much money and not being able to recapture it. We've redone his "paycheck" deductions and are only having what his actual tax rate should be taken out. So, while we won't be able to claim the deductions, et al. We will still be ahead by having less money taken out of his taxes...giving us time to earn interest on it.

    What a complicated, annoying game it is. heh

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    Featured Member lunchbox's Avatar
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    Default Re: Now I know why...

    Most of you have kids, die poor.

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