Delayed Tax Season (Thank you IRS and Congress) and AMT Explanation!!

20 November 2012 / Uncategorized / Comments Off on Delayed Tax Season (Thank you IRS and Congress) and AMT Explanation!!

IRS Warns - Tax Season could be delayed into MARCH due to slow-acting Congress!!

As the end of the year approaches, and now that Obama has been re-elected, our attention is now focused on the “fiscal cliff,” (see Widget's article on what this means here:

But a much more immediate result of Congress’ inaction threatens the 2013 filing season: the alternative minimum tax (AMT) patch, which expired at the end of 2011.

The IRS warns that the start of tax season could be delayed for millions of taxpayers if the AMT patch is not enacted by the end of the year.  The problem is serious enough that the acting IRS commissioner, Steven T. Miller, wrote a letter to Sen. Max Baucus, D-Mont., chair of the Senate Finance Committee, on Nov. 13, 2012. The IRS Oversight Board followed up with a second letter on Nov. 19, urging Congress to act and saying, “We do not believe that the IRS has ever faced such a formidable operational risk.”

The Alternative Minimum Tax (AMT) is an income tax imposed by the government on individuals, corporations, estates, and trusts and is imposed at a nearly flat rate (26% or 28%) on an adjusted amount of taxable income above a certain threshold (also known as exemption).  Regular taxable income is adjusted for certain items computed differently for AMT, such as depreciation and medical expenses and no deduction is allowed for state taxes or miscellaneous itemized deductions in computing AMT income.  AMT income is then multiplied by 26% or 28%, depending on your income level, and the tax computed under the AMT system is then compared with your regular income tax and you get to pay whichever is higher!

For 2011, the AMT exemption amount was $48,450 for single taxpayers and $74,450 for married taxpayers filing jointly.  At that level, 4 million taxpayers paid AMT for 2011, according to Miller. Without the patch for this year, however, the exemption reverted to $33,750 for individuals and $45,000 for married filing jointly, which, the IRS estimates, will cause 28 million more taxpayers to be subject to the tax, giving them a much larger tax liability than they had anticipated.

Because twice in the past when the AMT patch has expired, it has been reinstated retroactively, the IRS made the decision this year to maintain its tax filing systems “as-is” for the 2013 filing season. As a result, if the AMT patch and tax credit ordering rules are not enacted, the IRS warns of significant delays in the upcoming filing season. The programming changes it would have to make to its processing systems would mean it would have to notify 60 million taxpayers that they may not file a tax return or receive a refund until late in March 2013 and possibly later.

A lesser problem, but one that still may cause delays in the 2013 filing season, is the expiration of a number of special tax breaks, including the educators’ deduction for classroom expenses. Miller noted that these deductions were reinstated late in the year in 2010 (mid-December), which delayed the 2011 filing season by four weeks for 9 million taxpayers while the IRS made the necessary changes. Having to deal with similar issues this year will cause inconvenience and delay for a large number of taxpayers, but would be much more manageable than the problems caused by failing to act on the AMT, Miller said.

We at Widget keep our ear to the ground on all taxation issues and will continue to keep you informed!  If you have any questions, please feel free to give us a call!

Widget Bookkeeping and Tax, P.A.

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