Last-Minute AMT Calculations and Planning
- Author George Bauernfeind
- Published February 10, 2011
- Word count 540
The last-minute tax relief bill signed just a few weeks ago may have saved many from being pulled into the Alternative Minimum Tax for the first time, but what about the four million individual taxpayers already stuck there? Not even a "thank-you" from Congress or the President for the billions of dollars paid each year in AMT by these folks, much less any relief being planned - our country’s spending habits are just too great. But, while there is no way to make it just go away, there certainly is something these individuals can do about the AMT. With the help of a computerized AMT calculator, the amount of AMT paid can be reduced.
Let’s look at some facts. Last week the IRS released its Statistics of Income Report for tax returns filed in 2009, with some staggering information on the AMT. Here is what it shows:
-
The average amount of AMT paid was $6,500.
-
For the sixth straight year, the total amount of AMT paid showed a substantial increase - more than six percent higher than the prior year.
-
There are taxpayers at every income level – from $0 of income to over $10 million – paying the AMT.
-
Once income reaches $100,000, the chances of being pulled into the AMT become much greater.
-
The income range of $200,000 to $500,000 is the unfortunate AMT "sweet spot," with an amazing 70% of all taxpayers in this group paying the AMT.
So what can you do about your $6,500? Particularly for those in the "sweet spot" income range, chances are most of your AMT is being triggered by the one single item found on nearly 95% of all AMT payers’ tax returns – state and local taxes. The biggest culprits in this area are state taxes on income and property taxes on one’s home, with city and other municipal taxes, if those apply, compounding the problem. The AMT rule that comes into play here is the one that allows a full deduction for these taxes when computing the Regular Tax liability, yet denies any deduction for these when computing the AMT.
For example, suppose a family of four has taxable income for the Regular Tax – the starting point in all AMT computations – of $200,000. State income taxes and real estate taxes easily could amount to $20,000 worth of itemized deductions. What this means is that taxable income for this family for the Alternative Minimum Tax would be $234,600 – nearly 20% higher. This is because personal exemptions, worth $14,600 to this family in 2010, also are denied as a deduction for the AMT. Note that this simple example doesn’t even consider the 20-plus other AMT items that could affect this taxpayer (see IRS Form 6251). With this big a difference in taxable income, one can almost guarantee that this taxpayer will be stuck in the AMT.
So, again, what can be done? With an AMT calculator, it’s actually pretty easy. Suppose a property tax bill could be paid this year or in January of next year. If you move a $5,000 AMT item from one year to the next, it could mean lowering your AMT by nearly $1,500. If you could move $5,000 of state income taxes from one year to the next, now you have potentially $3,000 of AMT savings. It’s that easy!
George Bauernfeind is with AMTIndividual, providing analysis, customized strategies, and an online dual tax calculator / planner to help you reduce your Alternative Minimum Tax. Visit www.amtindividual.com or www.amtblog.com to read more tax planning articles or to access this tax software on the Alternative Minimum Tax.
Article source: https://articlebiz.comRate article
Article comments
There are no posted comments.
Related articles
- 10 essential tax-saving strategies for landlords: Maximise your rental income
- A Comprehensive Guide to Navigating the Process and the Role of Customs Brokers in the UK
- Outsourced Accounting Services for UK Businesses: A Cost-Effective Solution for Financial Management
- Top 8 Self Assessment tax return software
- How to Close a Limited Company in the UK
- Maximizing Your Finances: Unleashing the Power of CPA Services
- VAT penalties – New rules
- TAX-FREE STRATEGIES IN AN UNCERTAIN ECONOMY
- 2022 Energy crisis and failure to connect Reality.
- When Are Corporate and Personal Taxes Due in Canada in 2021?
- You Would Never Have Thought That Having Accounting Internship Could Be So Beneficial
- ACTIVATION OF UAN
- Focal motivations behind getting a Tax direct for Small Business Firms
- Avoiding the flood — tax issues with water rights in agribusiness
- Social security benefits for a family (COVID-19)
- How to use QuickBooks Component Repair Tool?
- Do you want to reduce your taxes for next year?
- Will you be responsible with your tax refund?
- Getting started with QuickBooks Enhanced Payroll in Brief
- Are DSTs Right For Your 1031 Exchange
- Tax Return Makeovers By Kenya Woodard
- Why have all crypto tax attempts failed?
- Are You a Corporation? Know Why Consulting a Tax Accountant Is Vital
- Share capital or share premium for your Dutch company?
- Everything investors should know about 1031 sponsors
- Why is the income tax so high in UK?
- Should I do my own tax return?
- Get More Money Back on Your Tax Return with help from the Tax Cuts and Jobs Act
- Don’t Fall Victim to these 3 Tax Scams in 2018
- Find Out If 72(T) Penalty Free Income Is a Solution for You