Alternative Minimum Tax Planning TIPSJan 12, 2016
The Alternative Minimum Tax, originally implemented by Congress in 1969, was designed to ensure that high-income individuals pay a minimal amount of tax. The tax is calculated on Form 6251 and is extremely complicated. After calculating your regular tax, a number of preference items are added back to your taxable income, AMT exemption is subtracted and the tax is recalculated according to the AMT tax schedule. If the calculated AMT tax is higher than the regular income tax, the difference is AMT.
Three Noteworthy Planning Tips:
1: If your marginal tax rate is higher than the 28% maximum AMT rate, you may benefit from accelerating income into a tax year when you will pay AMT anyway. However be cognizant of the time value of money before doing so, especially since you will be paying taxes earlier.
2: Consider deferring late year expenses that you cannot deduct for AMT purposes to the following year if you anticipate you will not be subject to AMT in the subsequent year. Some examples are investment fees and taxes.
3: Typically the interest is not tax exempt on private activity muni bonds for AMT purposes except for private activity bonds issued in 2009 and 2010. However we strongly suggest before investing in private activity bonds to check their tax status.
If you have questions please contact us and we will gladly walk you through these calculations.