What is Alte ative Minimum Tax?

You May Be Subject To Alte
ative Minimum Tax and Not Even Know The Consequences

The Alte
ative Minimum Tax was introduced by the IRS in 1969 and instituted for wealthy people who were eligible for special tax benefits – and thus owed little or no taxes. Based on a number of factors, more and more of us are now subject to AMT.

Ask your accountant if you are subject to AMT. If you are, you’ll be surprised that you can’t deduct:

1) Property taxes you pay on your home
2) Miscellaneous “tier 2” non reimbursable business expenses
3) Investment Advisory Fees
4) Tax preparation costs
5) Medical expenses that are at or below 10% of your adjusted gross income (AGI)
6) State taxes paid

Here are 8 Ways To Reduce Or Eliminate The Alte
ative Minimum Tax

1. Accelerate Your Earnings for the Year. The more earnings you have relative to your deductions, the less of a chance you will fall into AMT.

2. Consider selling municipal bonds that are subject to Alte
ative Minimum Tax. They are usually private activity bonds for airports and stadiums.

3. If you work at a company that issues incentive stock options, be very careful. If you exercise and hold the stock for a year (in order to pay long term capital gains taxes vs. ordinary income taxes), and the share price goes down, the gain is subject to AMT if you don’t sell before December 31st. Bottom line – if you have ISOs, review the tax ramifications with your financial planner and/or your accountant.

4. For some taxpayers, a large long term capital gain can reduce the Alte
ative Minimum Tax exemption amount. If you believe the share price will be the same or higher over the next year, consider breaking up your sale into two years.

5. If you are an employee, try and get reimbursed for expenses that your employer usually doesn’t pay for. Under AMT, these expenses are not deductible. Your employer will also save some money by not having to pay payroll taxes.

6. If your employer has a Flexible Spending Account or “cafeteria plan,” consider signing up for this. It could reduce both your taxable income and the alte
ative minimum tax.

7. Consider delaying your state 4th quarter estimated tax payment till the next year, as well as the 2nd half of your property taxes. You don’t get any benefit in paying these taxes in the year that you are subject to AMT.

8. Interest paid on a Home Equity Line of Credit is only deductible if you use it to make home improvements. If you use it to pay off other debt, or buy a car, the interest is not deductible under the Alte
ative Minimum Tax.