The Motley Fool Discussion Boards

Previous Page

Retirement Discussions / Retire Early CampFIRE


Subject:  Re: AMT Date:  1/19/2007  10:14 PM
Author:  synchronicity Number:  326915 of 816680

I must point out the mechanics of the AMT goes a long way towards what the flat tax advocates (like me) well.... advocate.

The AMT counts most income, eliminates most deductions and applys a fixed rate to the result.

Exactly. I'm always amused by people who A) are vocal proponents of a flat tax who B) raise their voices in protest at AMT. Not you, obviously, but some other people.

However, that may come about because many people (again, not you) don't understand how AMT works.

Isn't it the case, however, that qualified dividends and LTCG are included in the AGI that determines whether you pay AMT or not? IOW, if you have a bunch of dividends and LTCGs, they get taxed at 15% themselves, but push regular income into the 26% bracket when it would have been at 15% otherwise?

Sort of. I'll explain more below.

Or 28% or 33% when you would have been 25%. That's what getting us in both 2006, but especially 2007 when DH takes his NUA lump sum. I'm not allowed to take any profits this year unless they change the code <g>. Kidding! I'll be careful, though.

Aren't the rates 10% - 15% - 25% - 28% - 33% - 35% ?

You're confusing AMT with the regular tax.

The simple way to think about it is this: the AMT is like a totally different tax system. Imagine that you're filing another tax return, under a totally different set of rules. Those rules work roughly as follows:

1) Most stuff that is classified as "income", including a few things that might not be under the "regular" system (incentive stock options are the major stumbling block for many people, IIRC)
2) Your deductions are much more limited than under the regular system.
3) Instead of the standard deduction/most itemized deduction/personal exemptions, you get One Great Big Exemption.
4) everything above the Great Big Exemption gets taxed at a 26% up to about 175K, and above 175K it gets taxed at a 28% rate. Dividends, capital gains, stuff from REIT's, whatever. Income is income.

The Great Big Exemption gets