Smart Money Choice$

As the first article of our new blog format, I wish I had better news to share with you about the fast-approaching tax season. But there is trouble afoot. And it has been brewing for a long time now. At this point, it looks like at least some inconvenience, if not a higher tax bill for literally millions of taxpayers is inevitable.

Way back in 1969 a law was passed that was intended to work as an income tax equalizer. Because the very wealthy are often able to claim a large amount of itemized deductions and perform tax-sheltered transactions so that they actually pay very little proportionatly in taxes, a special tax was put in place to be sure that they pay at least their fair share, compared to everyone else. This is known as the Alternative Minimum Tax (AMT).

This special tax was intended for the wealthy, but it was not indexed for inflation. So now, for 2007, it is poised to affect about 23 million middle-class taxpayers! Additionally, 25 million more taxpayers will face higher taxes for 2007, as 10 tax credits, such as the child tax credit, will expire on December 31, 2007. The truth is, the outdated AMT laws are about to adversely affect almost all taxpayers, one way or another.

Congress has been aware of this problem for many years and has passed what’s call a “patch” annually to extend the credits and protect taxpayers who should not be affected by AMT. But the number of potential taxpayers who will be hit by the tax this year requires a more complex fix than in years past.

So far, Congress hasn’t been able to agree on how to best remedy this situation. Time has run out, and the effects are getting worse with every day that passes without a solution.  

At this point, all taxpayers, even low income families will feel the effects of this problem, because it will cause a delay in all tax return processing by the IRS. At the very least, the IRS requires seven weeks after a new law is passed to update their systems and be ready to accept tax returns.  This means no one will be able to file their tax returns until February or possibly even March! That applies to both paper and electronically filed tax returns. So even those who usually file early because they expect a refund will just have to wait.

Needless to say, everyone who has anything to do with tax return preparation has already got a big headache on their hands. Sadly, all we can do at this point is keep an eye on the news and prepare for the worst. It is expected that Congress will pass a law to handle the AMT problem, but when that will actually materialize is the question.

This entry was posted on Monday, December 17th, 2007 at 5:38 pm and is filed under Articles, News Flash. You can subscribe via RSS 2.0 feed to this post's comments. You can comment below, or link to this permanent URL from your own site. Your comments will appear immediately, but I reserve the right to delete innapropriate comments.