Just a 46-year-old mom of 2 in Northern California. My kids are Monkey Monkey(MM) and Drama Llama (DL). I am married to Monkey Hubby (MH). See my last entry for Part I on this topic.
I wanted to illustrate an example how AMT is affecting the middle class. The example below is our taxes pretty much, assuming my husband got a $25k/year job. We're not in AMT, yet, with my income. But a second income, no matter how small, would push us into AMT territory.
Regular Tax:
100,000 Income
(13,600) 4 personal exemptions
(12,000) Mortgage Interest
( 4,000) Property Taxes
( 3,000) State Income Taxes
( 2,500) Medical expenses over 7.5% AGI
--------
64,900 Taxable Income
--------
9,073 Tax (mostly 15% tax rate)
(2,000) Child Tax credit
--------
7,073 Net Tax
--------
--------
Our real income tax liability is around $3k on $75k income. I admit that is insanely low. But as you can see we do not have a lot of wealthy tax shelters. LOL. We have kids, high mortgage, high state taxes, and high medical expenses. Which lead to a decent amount of tax shelters, yes. But not the kind of tax shelters AMT was meant for.
Oh, we barely bumped up to the 25% tax rate here. $300 of the tax was 25% tax rate. The rest of the tax was 10%/15% tax rates.
Let's now look at what our real tax would be in this situation, since we would pay AMT.
AMT:
100,000 Income
(13,600) 4 personal exemptions
(12,000) Mortgage Interest
( 4,000) Property Taxes
( 3,000) State Income Taxes
( 2,500) Medical expenses over 7.5% AGI
--------
64,900 Taxable Income (Regular Tax)
--------
13,600 Add back exemptions
4,000 Add back property taxes
3,000 Add back state income taxes
2,500 Adjust medical expenses (10% AGI)
--------
88,000
(45,000) AMT Exemption
--------
43,000 Taxable Income (AMT)
x 26% Flat rate
--------
11,180 Tax
(2,000) Child Tax Credit
--------
9,180 Net Tax
--------
--------
That's a tax increase of $2,100.
The only tax deduction we would get to keep is our home mortgage deduction. (Well thank goodness for that!) No personal exemptions, no state taxes, no medical expenses. You get the point. But yeah, we get to keep the child tax credit! Helps the blow from losing all of our exemptions...
You could argue that our AMT tax would be similar to the pre-2000 tax structure. It might even be a little lower still, honestly. But that's not really the point. The point is, then, why do we have an insanely archaic and complicated tax system??? Drop the AMT and revert to old tax rates then. Or even new rates. MUCH simpler. & you also see that if you pay a lot of state taxes and you have more than 2 kids, how you will get a decent tax break under the regular tax, and how you will be severely penalized under AMT. The gap between the 2 just widen in these cases. Not exactly any rhyme or reason.
So yeah, just an example of how it works.
Here's an interesting opinion piece on the subject:
Oh you would think us tax preparers would love charging more for these complicated tax returns. Considering the insane shortage of CPAs in this country? Think again. Who can figure this stuff out? It takes more time. It pisses off our clients. There is no upside here. Believe me, the tax code is way complicated enough as is to keep us in business, without the stinking AMT.
December 15th, 2007 at 05:15 pm 1197738908
Why is there a shortage of CPAs? Do they not get paid enough? Are the study of accounting and yearly requirements of certification so rigourous they weed out a lot of prospective accountants? Is it because the tax laws are US-specific that it's impossible to import an immigrant with accounting training? Do CPAs experience high levels of burnout?
Thanks for calling our attention to this. Perhaps not too many people care because they're in low cost of living states and their agendas for government reform include what they know. I'm from a HCOL area, not as brutally taxed as Schwarzeneggerland, however, and we're looking at AMT. I'm kinda scared, because my income is variable, and although I did anticipate a higher than usual income this year and had extra tax withheld, I'd be pained to see my emergency fund go *poof* on April 15. So much so that I would spend my spare time investigating the local 'grey market'/recycling economy for goods and services to cut down my spending needs and therefore my earning needs.
Honestly, if I wanted a higher tax rate, I'd go back to Canada where at least there's some proper safety net.
December 16th, 2007 at 05:14 pm 1197825261
Oh, this is a hard question to answer without a novel.
Historically, the pay is crap. It still has issues.
We do a lot of outsourcing and so internationally it is not a problem. What is a problem is that a lot of my friends in college got shipped back out after 9/11. (China, Philippines, Vietnam. Heavy Asian population in the Bay Area. I remember the firm I worked for refusing to sponsor their work visas even though we were so insanely short people. Don't ask me why). I have seen you wonder if there are different classes of immigrants. I often wonder the same. I know Cali sends very mixed messages on its feeling of Mexican immigrants. They obviously want them on some level. Well, they didn't get the memo that all accounting students should be allowed to stay in this country. We NEED them. They aren't taking my job. They were helping. (We also had some Canadian accountants at my last firm. They were fine with the switch).
In contrast, I work for a mom and pop outfit who outsources to India. We also outsource to Mid-West. We give up on finding people here. The wages don't attract people here. But does attract people in North Dakota and North Carolina, and India.
Yes, before to get a CPA license you had to commit 2 years of your life to a CPA firm. The most common route anyway. The pay was crap and you were worked to death. At some point the pay was just too crappy. During the tech boom you could easily make six figures a year out of school in industry. Which would be a 5-year-track at least, at a CPA firm. This was in the Bay Area where wages are mostly high anyway. In 1999 I graduated school, worked 70-hour weeks, and made $30k. I could have easily been paid twice as much, out of school, and 3 times as much within a year or 2, but I wanted my CPA license, so I paid the dues.
They dropped the experience requirement soon after. Changed it; made it easier. You think that would help. But instead they are just churning out terribly under-qualified CPAs. No relevant experience. My boss is appalled. He had to sign off on a guy he felt was in no way shape or form CPA material. BEcause he did computer work for us for 2 years. ?????
Which leads me to the biggest problem. IT's the educational system as a whole. We have not hired a new college grad in about 4 years. Everyone who comes through is clearly under-qualified from the interview process. & my boss is scared off with the few he has hired. They can't do basic problem solving. They don't know algebra. On and on and on. My boss gives an intense set of standardized tests to weed out potential employees. He says in the last decade or so, the people who even score on the test, in the given ranges, has dropped dramatically. He says the levels are admin, college grad, professional, CPA. Most CPAs or CPA-track grads are scoring BELOW admin level. Off the charts. The fact that I am an experienced CPA with a brain, and only 30, puts me in a pretty unique position. When I say I have job security galore, I mean it. I get job offers every day. I ran into a college friend last week at a continuing education class. The first thing out of her mouth after the "you look familiar. How are you doing?" The niceties.. NExt thing, "we're recruiting if you are interested." (Well, duh. Who isn't?) But if she recruited me, she might get a $15,000 cash bonus.
Anyway, we don't even care if we hire CPAs to do the work any more. We just can't find anyone qualified in the least, CPA or not. Craigslist is filled with $65k/year "experienced bookkeeper" jobs at CPA firms. Thing is they don't pay their CPAs much more. Even if we found a smart college grad, we wouldn't have the time to train anyway. We no longer recruit college grads. Most small firms are going this way. Outsourcing, and hiring less qualified employees. Just the only viable route we can see.
Oh on top of that Sarbanes Oxley increased the CPAs needed 2-fold (just more work for us). & the environment is just so litigous and complex. The risk is no longer worth the reward. Much as similar factors have got to be plaguing many industries these days. We can't be the only ones feeling this way.
As such, burnout is very high.
I could go on and on...
December 17th, 2007 at 02:07 am 1197857232
I recently read a book you might find really interesting. It's called Taxing Women, and goes into great depth about the effective marginal tax rate of having a second earner. Basically the tax system effectively has incentives for poor women not to marry, and for middle and upper middle class women (and a few SAHD's) not to work.
December 17th, 2007 at 09:50 pm 1197928219
That is true, but I don't think most people realize. I am sure you know that I realize this and this is a huge reason my spouse does not work. I think a lot of people look at us and think we gave up a $40k wage, or whatever, in awe. Like how did we do that??? Pffft. We gave up a $10k wage (after taxes and daycare), which is easy enough to make up in the evenings and weekends. I admit for the long run we give up more. But for the long run, a second wage looks less appealing. Now that we are looking at AMT and stuff like that. That part-time or side income is much more lucrative once you consider quality of life AND how much money we save on home cooking and not relying on so much convenience, etc.
Anyway, sounds right up my alley! Thanks!