We had several readers respond to our post yesterday asking for a couple more examples for a more “typical” situation. The seminar included other examples. One example was a married couple with three children and “normal” itemized deductions with the husband earning $100,000.
In this example, the gross income tax owed for 2011 was $7,779. After a $3,000 child tax credit and a $1,500 education credit, the final tax amount was $3,279. For 2012, the tax is currently scheduled to increase to $4,860 unless they extend the AMT “Patch” increased exemption amount. If this is extended (which should happen, but may not), the actual tax owed would be $3,184.
In 2013, the total tax bill would be $5,860 or an increase of almost $2,600 from 2011 or a 79% increase. In addition, their families FICA tax would increase by $2,000. Although a much smaller number than the example yesterday, this is a much higher percentage increase in tax.
The primary reason for the large increase is the child credit is reduced from $1,000 per child to only $500 per child.
Another example with a husband earning $100,000 and the wife earning $50,000 with a long-term capital gain resulted in their total tax bill going from $26,625 in 2011 to $34,375 or an increase of $7,750 or about 29%.
For most taxpayers, even if Congress does extend the Bush and Obama tax cuts for another year, if the AMT “Patch” is not enacted, most taxpayers would see little or no benefit from the extension. The AMT number becomes larger and larger each.
Paul Neiffer, CPACategories: Farm Industry Trends, Farm Leadership, Farm Taxes
Tags: fiscal cliff