Ninaolsen Has Been Practicing tax law for nearly 30 years. These days, she's the nation's taxpayer ad-vocate―the in-house representative of ordinary citizens at the Internal Revenue Service. And she knows about as much as anyone about the tax code. But Olsen was stunned last spring when she finished running her return through a commercial tax-prep program. There on line 43 of her Form 1040 was an extra levy of $721. "I was just like, Wait a minute, how did that happen?'" "That" was the price of the nastiest tax lurking in the code―the alternative minimum tax. First enacted in 1969 to rope in 155 fat cats who had escaped paying taxes altogether, the AMT today reaches far beyond the superwealthy dodgers it was supposed to target. This year, more than 3 million taxpayers―most of them middle-class and upper-middle-class couples with kids―are going to get clobbered by the tax. True, these taxpayers have benefited greatly from lower tax rates on income, capital gains, and dividends. But many of these advantages are being eroded by a tax that's largely hidden, difficult to plan for, and perverse in its consequences.
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