javy knows my name wrote:
squally1313 wrote:As an accountant, the total and complete AMT botch makes me so happy. What incompetency.
Can you broad stroke this one for us?
I'll try to keep it brief...for the last 30 years, the regular business tax rate was 35% and the AMT (alternative minimum tax) was 20%. Companies had to calculate their tax liability under both sets of regulations (regular and AMT) and pay the larger amount. There are a bunch of small differences, but the overall theme is that for AMT purposes, you are allowed less deductions (with the trade-off that you are taxed at a lower rate). The biggest one that I usually see if the Net Operating Loss deduction. For regular purposes, you can use past losses to offset up to 100% of your current taxable income (which you might remember from the Trump tax return from the 90s). For AMT purposes, you can only offset 90% of your current income, and then are taxed on the rest. From my experience, AMT existed to ensure companies making money had to pay tax, even if they had large losses in the prior year.
The botch came because of the new corporate tax rate of 20%. When it was first pitched, it always came with the repeal of AMT, given the rates would line up. Somehow, for budgetary purposes and the fact that the bill was a sh*tshow that got thrown together in a matter of hours, AMT remained in the tax code. Now it's in there as an alternative tax at the same rate, but with much less deductions/credits, which essentially means businesses will almost always end up having to pay the AMT. Newest estimates is that it's going to raise tax revenue by about $300b, which means businesses (ie, the people that wrote this bill) are not pleased. And because it's such a large screw up, it seriously complicates getting the two bills reconciled/passed.
Hope that helps and wasn't too boring.