Back in the day…(Pre-Reagan), Alternative Minimum Tax didn’t affect too many of our clients. You may ask, “alternative what?” Please don’t fall into deer in the headlight’s blank stare. Many pay “alternative” tax but don’t know it unless it is pointed out on line 46 of their form 1040.
In a nutshell, AMT is computed by adding certain expenses back to your taxable income like state taxes, miscellaneous deductions, and several other things the IRS doesn’t think you are REALLY entitled to when push comes to shove. There are planning opportunities that may eliminate this devil tax , but that has to happen well before the year end.
In any event, here are some things from the IRS that you should know about AMT:
1. You may have to pay the tax if your taxable income, plus certain adjustments, is more than the AMT exemption amount for your filing status. If your income is below this amount, you usually will not owe AMT.
2. Know the current year AMT exemption amounts.
3. The rules for AMT are more complex than the rules for regular income tax. The best way to make it easy on yourself is to use IRS e-file to prepare and file your tax return. E-file tax software will figure AMT for you if you owe it.
4. If you file a paper return, use the AMT Assistant tool on IRS.gov to find out if you may need to pay the tax.
5. If you owe AMT, you usually must file Form 6251, Alternative Minimum Tax – Individuals. Some taxpayers who owe AMT can file Form 1040A and use the AMT
One possibility to eliminate the Miscellaneous Deduction problem is to incorporate. This alternative may make sense for people like actors who receive a form W-2 but have large miscellaneous deductions like agent’s commissions.
In any event, the sooner you try to tax plan, the more likely you are structure a tax strategy that can save you money the following April.
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