Comments on: 2007 Tax Year AMT Brackets

By: TFB

TFB — Fri, 03 Oct 2008 05:35:03 +0000

ESS – I'd double check on how you are projecting your tax liability in 2008. Maybe the tool you are using assumed the AMT exemption amount (E) won't be increased and will fall back to its original $45k number for married filing jointly. Congress has to pass a law to temporarily increase that number every year. Even that doesn't fully explain the huge tax increase you mentioned. I'd think there has to be a calculation error somewhere. Finally when you calculate marginal tax bracket, you have use taxable income, which takes into account the exemptions and deductions.

By: ESS

ESS — Fri, 03 Oct 2008 03:47:22 +0000

Thoughts about my 80% marginal tax rate?

I'm going crazy because I just calculated my "effective" marginal tax rate on the income I earned in 2007 and my projected income in 2008. Your post may have something to do with this huge affect.

In '07 I earned 287k with $100k deductions and exemptions (simply taxes, interest, charitable contributions and standard exemptions for my wife and 3 kids) and paid $44k in taxes including $2k in AMT.

However, in 2008 I'll earn $364k with $90k deductions and exemptions (including a loss of $4200 to my deductions and only $5500k in exemptions) but I'll pay $104k in taxes ($69k in regular income taxes and $35k in additional AMT).

So, my incremental income is $77k while my incremental taxes are $60k – netting me $17k more for the year.

So – I think Ted's post on Aug 17 is a real potential. I intend to incrementally model the tax effect of every $1k of income and then plot it out to see whether you could actually lose money. Nonetheless, having 80% of it go to the government is not a good deal.

Any other thoughts about what may be happening?

ESS

By: TFB

TFB — Wed, 20 Aug 2008 01:51:06 +0000

Manda - First you have to know whether you pay AMT or not. If you pay AMT, your marginal tax bracket is outlined in this post. Then read Which Vanguard Money Market Fund? and use the calculator in that post.

By: Manda

Manda — Wed, 20 Aug 2008 00:59:51 +0000

My husband and I are in the 33% filing jointly tax bracket (living in Wisconsin) and are trying to decide on a money market fund for our savings/emergency money. We are looking at Fidelity and Vanguard. Should we do an AMT Tax Free fund or the Fidelity Municipal Money Market? Would it be better to not pay AMT or have an account that's state/federal tax exempt? HELP! This all seems so confusing.

By: TFB

TFB — Sat, 19 Jan 2008 06:24:00 +0000

Ted,

I don't think the income itself will be completely confiscated by the AMT, i.e. having a marginal tax rate of 100% or more at any point. However, if you have to incur extra expense to earn that income, for example daycare or extra car for commuting, you can end up having less money than before you got into AMT.

Alex,

I'm not too worried about the municipal money market funds. See my previous post Risks in Money Market Funds.

By: Alex

Alex — Thu, 17 Jan 2008 20:05:00 +0000

Rgarding AMT-free mutual funds, I like your calculator and it certainly does make sense for some individuals. I saw that Fidelity has two-tiered AMT-free funds.
The only concern I have is with the fact that AMT-free funds are backed by municipal securities, which are risky in general, but especially now.

By: Ted

Ted — Thu, 17 Jan 2008 15:50:00 +0000

I'm curious if the AMT causes one to actually end up with less money than before they crossed into AMT territory.

In other words is, could you net more if you made less?