At tax time, the AMT can hurt

With the 2006 tax year filing deadline coming in a little over a week from now, have you done yours yet? This is the question I've been asked dozens of times in the last week, as taxes provide more water-cooler talk in the first few weeks of April than the final four of the NCAA tournament. The culprit? Anxiety would be my guess.

Anyway, the now-outmoded alternative minimum tax (AMT), created as a roadblock to tax avoidance by the affluent, is now trickling down to the middle class (and has been for years now). The AMT is a tax structure that disallows personal exemptions, the standard deduction or a host of other tax breaks that middle-income families enjoy under the regular tax code. For many single-earner or double-earner families, those exemptions and deductions can mean thousands of dollars in tax differences. These are no small potatoes to families that even make six figure incomes but have a huge tax burden due to the AMT.

Is it time to banish the AMT or re-structure it for current economic circumstances? This is being discussed in many circles, even in Congress. If the AMT is re-structured, which class of wage earners would it effect most? With the AMT tax affecting non-tax-avoiding citizens who just happen to live in states with higher state and local taxes, time has come for a change. Or (jokingly), states with higher state and local taxes could face a mass exodus of taxpayers to other states. Maybe another real estate bubble is on the horizon. Alright, enough joking. The AMT is all too serious.