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12 Flaws of the Alternative Minimum Tax

  1. Taxpayers exercise and hold stock options in order to pay 20% long-term capital gains tax at sale, but AMT forces them to instead pay 26% - 28% tax in advance of sale.
  2. AMT credit can easily outlive a taxpayer, since it can be applied only to difference between successive years’ AMT and regular income tax.
  3. In a stock market downturn, the government’s AMT collection is unaffected, while the stockholders’ assets are decreased not only by the stock market loss, but also by the decimation of remaining stock and a lifetime of collected assets.
  4. In a down market, even if you can somehow pay the tax from other assets, your real tax rate (low, middle or high class) remains incredibly high and can easily exceed 100%. And it is not certain that the stock will ever recover.
  5. AMT drastically exacerbates the risk of holding for long-term capital gain.
  6. The government does not pay interest on the collected AMT that generates a credit.
  7. AMT collection, based on date-of-exercise unrealized gain, can be ultimately legitimized only in a bull market. In a bear market, the tax is unmasked as maverick to any other tax-collection process.
  8. AMT causes gain from incentive stock options (which often substitute for salary) to be taxed in a disadvantageous manner.
  9. AMT discourages the economically beneficial practice of holding stock.
  10. AMT makes middle-class investment income unavailable.
  11. The base income subject to AMT has not been adjusted for inflation in 35 years; therefore every year, this tax impacts increasing numbers of middle-income households.
  12. Due to the complexity of AMT, tax experts and investment counselors are frequently either unable or unwilling to advise constituents about consequence of AMT, making AMT a major taxpayer hazard.