Anonymous
03/13/2013 18:43
Subject: Alternative Minimum Tax
There are certain things one can do to try to avoid the AMT, but it is not always easy, but once it hits there really is nothing you can do to get out of it. The software will (or I guess should) run taxes both ways but if the AMT applies, it applies, and the most you can do is try to avoid it next year. You can try to eliminate some deductions but that rarely improves the tax situation.
Anonymous
03/12/2013 20:44
Subject: Alternative Minimum Tax
Anonymous wrote:Anonymous wrote:I triggered AMT this year according to turbotax but i dont know how. We dont seem exceptional in any particular way.
We make $224K a year. Our mortgage interest is a $14K. We have 2 kids. Our personal exemptions are $15K. Our property tax is $6K. Our state and local tax is $14K. Total deductions are $51K on $224K of income.
This was our situation almost exactly, last year. Then I wanted to find out what I could change that eliminate the AMT. One at a time I reduced the mortgage interest, charitable contributions, property tax etc. and every time we still came up owing the AMT. I haven't done our taxes yet this year but I know we will pay AMT again. For what it's worth, I no longer bother keeping track of every charitable deduction. It doesn't seem to matter.
I don't know enough about how AMT works but I wonder if I'd be better off just not taking one of those deductions and not triggering it. It only added about $1,700 to our total so I doubt that works but I wonder. I've had years were my effective rate was as low as 13% and didn't trigger it. So who the hell knows.
Anonymous
03/12/2013 20:30
Subject: Alternative Minimum Tax
Anonymous wrote:Anonymous wrote:I triggered AMT this year according to turbotax but i dont know how. We dont seem exceptional in any particular way.
We make $224K a year. Our mortgage interest is a $14K. We have 2 kids. Our personal exemptions are $15K. Our property tax is $6K. Our state and local tax is $14K. Total deductions are $51K on $224K of income.
This was our situation almost exactly, last year. Then I wanted to find out what I could change that eliminate the AMT. One at a time I reduced the mortgage interest, charitable contributions, property tax etc. and every time we still came up owing the AMT. I haven't done our taxes yet this year but I know we will pay AMT again. For what it's worth, I no longer bother keeping track of every charitable deduction. It doesn't seem to matter.
Actually, charitable gifts are one of the few deductions that are still available when paying AMT. I'd start tracking them again if I were you.
Anonymous
03/12/2013 19:17
Subject: Alternative Minimum Tax
Anonymous wrote:I triggered AMT this year according to turbotax but i dont know how. We dont seem exceptional in any particular way.
We make $224K a year. Our mortgage interest is a $14K. We have 2 kids. Our personal exemptions are $15K. Our property tax is $6K. Our state and local tax is $14K. Total deductions are $51K on $224K of income.
This was our situation almost exactly, last year. Then I wanted to find out what I could change that eliminate the AMT. One at a time I reduced the mortgage interest, charitable contributions, property tax etc. and every time we still came up owing the AMT. I haven't done our taxes yet this year but I know we will pay AMT again. For what it's worth, I no longer bother keeping track of every charitable deduction. It doesn't seem to matter.
Anonymous
03/12/2013 16:57
Subject: Alternative Minimum Tax
I triggered AMT this year according to turbotax but i dont know how. We dont seem exceptional in any particular way.
We make $224K a year. Our mortgage interest is a $14K. We have 2 kids. Our personal exemptions are $15K. Our property tax is $6K. Our state and local tax is $14K. Total deductions are $51K on $224K of income.
We make $224K a year. Our mortgage interest is a $14K. We have 2 kids. Our personal exemptions are $15K. Our property tax is $6K. Our state and local tax is $14K. Total deductions are $51K on $224K of income.
Anonymous
03/12/2013 13:55
Subject: Alternative Minimum Tax
Anonymous wrote:Anonymous wrote:Anonymous wrote:The AMT is a "parallel" tax system. It was created in the 1960s after testimony that 155 really high-income people avoided tax by zeroing out their taxable income with deductions and exemptions. It was modified in the 1980s. But until this year, it was not indexed for inflation on a permanent basis, so as incomes rose, more middle-class people got sucked into it while the really wealthy basically escaped it.
The AMT works by denying many common deductions and exemptions (including state and local taxes and personal exemptions) and replacing them with a set tax-free exemption. It then applies a 26% or 28% tax rate on income earned in excess of the exemption. If you might be subject to the AMT, you have to calculate your taxes under both the normal system and under the AMT rules and pay whichever is higher. Basically, even though the top rate for individuals is higher than the highest AMT rate, you might end up paying AMT because more of your income will be subject to tax.
The exemption amount for 2012 is $50,600 for singles and $78,750 for married couples.
Thanks, OP here. This is helpful. I am no where near earning enough money for AMT to kick in but I'm preparing my father in law's taxes and his income is higher. I'm using H&R block/Tax Cut. Do you happen to know if the software will have already run this both ways for me?
Yes, it should.
These are some major risk factors for AMT: 1) Having lots of children (i.e, more than two); 2) Living in a high-tax state like California or New York; 3) Owning a home with high property taxes; 4) Having a lot of deductible medical expenses; 5) Exercising incentive stock options from an employer 6) carrying forward any net operating losses; 7) having tax-exempt interest from private activity bonds; 8) paying a lot of taxes to a foreign government 9) some investment interest expenses 10) some form of accelerated depreciation (which you'd have only from a pass-through business).
Thanks. he doesn't have any of those factors, though his property tax bill is a lot higher than ours, for example (Florida). It's just that he took a very large chunk out of his retirement account last year. It looks as if AMT will kick in and he wont' get the benefit of any deduction for most of the property taxes or his sales tax deduction. (I if remove those two items from TaxCut the total tax bill stays the same - without there is no AMT and with AMT is about $5k).
Anonymous
03/12/2013 12:35
Subject: Alternative Minimum Tax
Anonymous wrote:Anonymous wrote:The AMT is a "parallel" tax system. It was created in the 1960s after testimony that 155 really high-income people avoided tax by zeroing out their taxable income with deductions and exemptions. It was modified in the 1980s. But until this year, it was not indexed for inflation on a permanent basis, so as incomes rose, more middle-class people got sucked into it while the really wealthy basically escaped it.
The AMT works by denying many common deductions and exemptions (including state and local taxes and personal exemptions) and replacing them with a set tax-free exemption. It then applies a 26% or 28% tax rate on income earned in excess of the exemption. If you might be subject to the AMT, you have to calculate your taxes under both the normal system and under the AMT rules and pay whichever is higher. Basically, even though the top rate for individuals is higher than the highest AMT rate, you might end up paying AMT because more of your income will be subject to tax.
The exemption amount for 2012 is $50,600 for singles and $78,750 for married couples.
Thanks, OP here. This is helpful. I am no where near earning enough money for AMT to kick in but I'm preparing my father in law's taxes and his income is higher. I'm using H&R block/Tax Cut. Do you happen to know if the software will have already run this both ways for me?
Yes, it should.
These are some major risk factors for AMT: 1) Having lots of children (i.e, more than two); 2) Living in a high-tax state like California or New York; 3) Owning a home with high property taxes; 4) Having a lot of deductible medical expenses; 5) Exercising incentive stock options from an employer 6) carrying forward any net operating losses; 7) having tax-exempt interest from private activity bonds; 8) paying a lot of taxes to a foreign government 9) some investment interest expenses 10) some form of accelerated depreciation (which you'd have only from a pass-through business).
Anonymous
03/12/2013 12:30
Subject: Alternative Minimum Tax
Anonymous wrote:The AMT is a "parallel" tax system. It was created in the 1960s after testimony that 155 really high-income people avoided tax by zeroing out their taxable income with deductions and exemptions. It was modified in the 1980s. But until this year, it was not indexed for inflation on a permanent basis, so as incomes rose, more middle-class people got sucked into it while the really wealthy basically escaped it.
The AMT works by denying many common deductions and exemptions (including state and local taxes and personal exemptions) and replacing them with a set tax-free exemption. It then applies a 26% or 28% tax rate on income earned in excess of the exemption. If you might be subject to the AMT, you have to calculate your taxes under both the normal system and under the AMT rules and pay whichever is higher. Basically, even though the top rate for individuals is higher than the highest AMT rate, you might end up paying AMT because more of your income will be subject to tax.
The exemption amount for 2012 is $50,600 for singles and $78,750 for married couples.
Thanks, OP here. This is helpful. I am no where near earning enough money for AMT to kick in but I'm preparing my father in law's taxes and his income is higher. I'm using H&R block/Tax Cut. Do you happen to know if the software will have already run this both ways for me?
Anonymous
03/12/2013 11:21
Subject: Alternative Minimum Tax
The AMT is a "parallel" tax system. It was created in the 1960s after testimony that 155 really high-income people avoided tax by zeroing out their taxable income with deductions and exemptions. It was modified in the 1980s. But until this year, it was not indexed for inflation on a permanent basis, so as incomes rose, more middle-class people got sucked into it while the really wealthy basically escaped it.
The AMT works by denying many common deductions and exemptions (including state and local taxes and personal exemptions) and replacing them with a set tax-free exemption. It then applies a 26% or 28% tax rate on income earned in excess of the exemption. If you might be subject to the AMT, you have to calculate your taxes under both the normal system and under the AMT rules and pay whichever is higher. Basically, even though the top rate for individuals is higher than the highest AMT rate, you might end up paying AMT because more of your income will be subject to tax.
The exemption amount for 2012 is $50,600 for singles and $78,750 for married couples.
The AMT works by denying many common deductions and exemptions (including state and local taxes and personal exemptions) and replacing them with a set tax-free exemption. It then applies a 26% or 28% tax rate on income earned in excess of the exemption. If you might be subject to the AMT, you have to calculate your taxes under both the normal system and under the AMT rules and pay whichever is higher. Basically, even though the top rate for individuals is higher than the highest AMT rate, you might end up paying AMT because more of your income will be subject to tax.
The exemption amount for 2012 is $50,600 for singles and $78,750 for married couples.
Anonymous
03/12/2013 10:35
Subject: Alternative Minimum Tax
Anonymous wrote:Can anyone give me the plain English run down on this tax. Is there any way to minimize your tax burden once you are subject to AMT?
Either earn a lot less or a lot more. It really hits people who earn between about $150k and $350k. Earn less and it's not a problem. Earn more and you're paying too much under the regular tax system for it to be an issue.
Anonymous
03/12/2013 10:30
Subject: Alternative Minimum Tax
Anonymous wrote:The AMT was instituted to make sure upper income people were paying a minimum amount of tax. The Bush tax cuts made things a lot worse (they advertised the tax cut in the usual rate brackets, knowing that they were going to catch a lot more people with the AMT).
Ways to avoid/reduce AMT would be things like, have a smaller mortgage, pay less state income tax, have fewer kids.
Mortgage has nothing to do with the AMT. Well, very little to do. HELOC interest that isn't used to improve or purchase a home is disallowed as a deduction. If you pay AMT you can still deduct most mortgage interest.
Property taxes, state and local income taxes, children are all "preference items" and disallowed. AMT basically treats children as a tax shelter.
Anonymous
03/12/2013 10:27
Subject: Alternative Minimum Tax
The AMT was instituted to make sure upper income people were paying a minimum amount of tax. The Bush tax cuts made things a lot worse (they advertised the tax cut in the usual rate brackets, knowing that they were going to catch a lot more people with the AMT).
Ways to avoid/reduce AMT would be things like, have a smaller mortgage, pay less state income tax, have fewer kids.
Ways to avoid/reduce AMT would be things like, have a smaller mortgage, pay less state income tax, have fewer kids.
Anonymous
03/12/2013 10:26
Subject: Alternative Minimum Tax
Try not to have anything that gets added back - property tax, state income tax, etc.
Anonymous
03/12/2013 10:15
Subject: Alternative Minimum Tax
Can anyone give me the plain English run down on this tax. Is there any way to minimize your tax burden once you are subject to AMT?