Are you ready for the 2010 Alternative Minimum Tax? Get out your wallet.

The 2009 Publication 17 Your Federal Income Tax for Individuals contains this interesting note in a section titled, "What's New for 2010."

Alternative minimum tax (AMT) exemption amount decreased. The AMT exemption amount is scheduled to decrease to $33,750 ($45,000 if married filing jointly or a qualifying widow(er); $22,500 if married filing separately).

The exemption amounts for 2009 were $46,700 ($70,950 if married filing jointly or a qualifying widow(er); $35,475 if married filing separately). This is not really news. The exemptions were scheduled to revert to this amount beginning in 2009, but Congress raised the exemption. A report by the US Treasury, "Tax Relief in 2001 through 2011" provides some explanation.

The AMT was a parallel tax system designed to make certain that very high income taxpayers would not be able to avoid paying income tax. A similar tax called the Minimum Tax was passed in 1969 after it was determined that a group of taxpayers with incomes over $200,000 paid no tax in 1966. Changes over time have lead to the tax now called the Alternative Minimum Tax. Testimony provided to Congress by a treasury official in 2007 explains the tax and its problems in more detail.

The problem with the AMT is that the calculations used to determine the tax base have not changed over time; or rather the law governing the calculations has not changed over time. Instead Congress has opted to pass temporary modifications each year. This creates a huge amount of uncertainty for taxpayers. In addition, even though Congress has opted to adjust the exemption amounts, more and more taxpayers pay AMT. A brief by the Tax Policy Center indicates that while the temporary 2009 exemption meant that only 4 million taxpayers paid the AMT that number will jump to 27.4 million if the exemption reverts to the lower amount. Assistant Secretary for Tax Policy Eric Solomon said it well in 2007 when he spoke to the Ways and Means Committee.

In many respects, the AMT illustrates how a good-faith attempt to address an issue in the income tax system can have enormous unintended and undesirable consequences. Today the AMT is imposing burdens on millions of taxpayers who were not its intended targets.

Write your senator or congressman and tell him or her that you want something done about the AMT. The web pages below contain links to help you find and write your elected representatives.

http://www.senate.gov/index.htm
http://www.house.gov/

You may find these IRS publications helpful. The resources below are for 2009. The 2010 versions will not be available until later in the year.

2009 Publication 17
2009 Form 1040 Instructions
2009 Form 1040A Instructions
2009 Form 6251 Alternative Minimum Tax—Individuals
2009 Form 6251 Instructions
2009 Form 8801 Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts
2009 Form 8801 Instructions

Take a look at the first 1040. The form and instructions are only four pages long.

The first Form 1040 was produced in 1913 after the 16th Amendment was ratified. The amendment said,

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

The 1913 Form 1040 was three pages long, and it was accompanied by one page of instructions. The normal tax rate was one percent.

The normal tax of 1 per cent shall be assessed on the total net income less the specific exemption of $3,000 or $4,000 as the case may be. (For the year 1913, the specific exemption allowable is $2,500 or $3,333.33, as the case may be.)

There was also an additional or super tax on taxable income above $20,000 as shown below.

Rate	on the amount over	and not exceeding
1%	$20,000	$50,000
2%	$50,000	$75,000
3%	$75,000	$100,000
4%	$100,000	$250,000
5%	$250,000	$500,000
6%	$500,000