There’s a consequence of going over the fiscal cliff that no one is talking about.
That’s the fact that an additional 33 million households will automatically become subject to the alternative minimum tax (AMT).
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A so-called AMT patch is due to expire along with other current tax laws at the end of 2012. Most of those who would automatically become subject to the AMT have no idea what may be coming to them.
The AMT was created in the 1960s to prevent wealthy people from paying no income tax because of deductions they are allowed to take.
Since it is not indexed for inflation, more and more middle class households have become subject to the tax, at least on paper. The Bush tax laws actually would have caused the creep of AMT to occur much earlier, starting in 2001.
To prevent that from becoming a reality, Congress has passed a patch every year or so. The last patch expired at the end of 2011.
That year, about four million households were subject to the AMT. If the current patch is allowed to expire, that number could jump to 28 million.
It could include a number of your clients. The IRS has issued a warning that says there is no way to partially extend the patch. Expiration of the patch would also complicate filing, even for those who do not become subject to the AMT.
Tens of millions of taxpayers would have to pay additional tax for 2012. It would also impact up to 60 million taxpayers with delays in the ability to file tax returns
and delays in receipt of refunds.