The Republicans are talking "compromise" on certain "loopholes" and "deductions" to increase tax "revenue". This is palatable pablum that they can spoon feed to their base because there is no discussion here on tax "rate hikes". However, any deductions that the House majority offers to eliminate or reduce are probably those already not allowable to higher income families because of the alternative minimum tax. Follow me below the orange 7-Eleven cookie as I attempt to explain.
The alternative minimum tax (AMT) was first introduced in 1968 as a way to insure that all Americans pay at least some tax on their earnings. Each year Congress has to place a "patch" on the tax computations to adjust for inflation. This patch is usually approved on December 31st, at 11:59:59 PM; just in time to drive tax programmers, tax preparers and publishers to drink (well, it is New Years!). Once this minor inconvenience is overcome, the parameters of the patch are finally known for tax planning purposes.
The AMT is actually an additional tax that you may owe on top of regular income tax. There is no real "test" to determine if you owe the tax. You simply (yeah, right) add back into your computations items that are beneficial to a lower regular tax. If the AMT exceeds your regular tax, you owe the difference in addition to your regular income tax. This is an extremely simplified explanation as to how it works. For a more detailed explanation, please go to www.irs.gov.
The following list is from Lassers "Your Income Tax" handbook, which I consider the premier reference on income tax issues.
These are the items that are excluded or added back into the formular:
-Certain itemized deductions
>state and local income tax
>sales tax (if your state doesn't have income tax)
>real property tax
>personal property tax
>foreign income tax
>miscellaneous itemized deductions above the 2% AGI floor
>reduced deduction for allowable medical expenses
>interest on home equity mortgage loans if the loan was for anything other than to buy, build or improve your principal or second residence
-Accelerated depreciation in excess of straight line (income producing assets)
-Income from the excercise of incentive stock options (added back in)
-Tax-exempt interest from private activity bonds (added back in)
-Intangible drilling costs (oil and gas exploration)
-Mining exploration and development costs
-Research and experimental cost
-Pollution control facility amortization
-Tax-shelter farm income or loss
-Passive income of loss (rental property, limited partnerships, etc.)
-Certain installment sale income
-Income from long-term contracts computed under percentage-of-income method
-Net operation loss deduction (line 21, page 1 of Form 1040)
-Foreign tax credit
-Investment expenses (management fees for IRA, 401(k), brokerage accounts, etc.)
-Gain on small business stock qualifying for exclusion (added back in)
Again, if you want additional information on this matter, please consult the IRS website @ www.irs.gov. I hope this list will become a handy reference when the "fiscal cliff" approaches and the usual pinheads are talking their usual nonsense. Only time will tell.
Remember, the uber rich DO NOT get these deductions to begin with. So, if Rep. Bohner proposes the elimination of these deductions he's really just taking away those deductions that are available to the 98% and proposing nothing that affects the 2% of Americans that get 98% of the tax breaks.
EDITED: To correct boo-boos.