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AMT
It Could Happen to you
(Page 4 of 4)
by Mary Beth Franklin
"Now my family is facing financial ruin," Doherty told the House Ways and Means Committee in a special hearing looking into the AMT last summer.
When the AMT is triggered by exercising stock options, you are supposedly being forced to pay tax sooner rather than later on the profit you'll score when you sell the stock. What you pay in AMT on the anticipated income becomes a credit to offset the tax when you sell the shares. But if the sale produces a loss--an eventuality that apparently was not seriously considered when the AMT was created -- you can be stuck with a credit that's difficult to use. Doherty figures it will take 30-plus years to recover the AMT she paid on a profit that never materialized.
The AMT also destroyed Rita Miller's finances--and has affected her husband's professional reputation as well. Their journey through AMT hell started in 1999, when she exercised stock options while working at VeriSign. "When we got this opportunity, we thought we were going to be able to help our family and live the American dream. Then -- bam -- we owed hundreds of thousands of dollars," she says. "It's been a living nightmare."
The Millers, who live in Catonsville, Md., have already paid more than $300,000 in taxes on paper gains that disappeared when the stock market collapsed. They still owed more than $125,000 when she and her husband, Art, both lost their jobs in 2002. Rita, 57, has since landed a job with the federal government, but Art, 59, was denied a security clearance when he applied for a government job because of the pending tax matter.
Doherty and Miller have joined the Coalition for Tax Fairness, an organization lobbying Congress for changes in the AMT rules. Among other things, they want to accelerate the use of the AMT credit so that people who pay taxes on phantom gains can recover the overpayments more quickly. --Research: Jessica Anderson
| What, Me Worry?
The world of the alternative minimum tax is a scary place. But should you be worried? Michael Kitces, a financial planner in Columbia, Md., prepared the table below to help you judge your vulnerability. Based on your taxable income under the regular rules, shown in the column on the left, the AMT is a real threat when the "extra" income captured by the AMT's wider net equals or exceeds the amount shown in the column on the right that matches your filing status.
Among other things, the "add backs" include what you may deduct under the regular rules for state and local taxes and home-equity-loan interest, and the value of personal exemptions you claim for yourself and your children ($3,100 each for 2004). The AMT also counts as income the difference between what you pay for stock bought with incentive stock options and what the shares are worth at the time you buy them.
|
| $50,000 |
$34,096 |
$25,779 |
| 100,000 |
29,058 |
24,322 |
| 150,000 |
24,731 |
17,899 |
| 200,000 |
20,757 |
16,596 |
| 300,000 |
15,043 |
20,677 |
| 400,000 |
21,939 |
44,313 |
| 500,000 |
46,939 |
69,313 |
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