ALTERNATIVE MINIMUM TAX (AMT): OUCH! Get ready, well maybe!
Many 1040 clients are unaware of a lurking tax called the Alternative Minimum Tax. A 1040 is actually prepared twice, once using the ‘regular’ rules everyone is familiar with and again using the alternative minimum income tax (AMT) rules. Once both returns are prepared the return with the HIGHEST tax liability is the return issued and the taxes paid to the IRS.
Why is there an AMT? This is the original ‘Buffet Tax’ or rich man’s tax. Per the IRS website, “The Alternative Minimum Tax attempts to ensure that anyone who benefits from certain tax advantages pays at least a minimum amount of tax.”
What is the difference? The AMT return does not tax state refunds as does the regular return, and it does not allow many of the Schedule A deductions, such as state income taxes, sales taxes, real estate taxes, mortgage interest, etc. (There are other differences, but these apply to most returns.)
In 2014, your AMT taxable income (similar to AGI or adjusted gross income on the regular tax return) needed to exceed the following before AMT became an issue:
- $82,100 for a married couple filing a joint return
- $52,800 for singles and head of household
- $41,500 for married persons filing separately
What can you do to reduce AMT?
- Reducing your taxable income as much as possibly by using deferred compensation options, maximizing 401(k) contributions, maximizing other pre-tax options offered by your employer, moving investments into AMT free instruments, etc.
- Charitable donations are deductible with both AMT & regular taxes (if you itemize). So, help out your favorite organization.
Contact Piwonka, CPA, Inc. sooner rather than later for a personalized tax projection and tax minimization strategy