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Ways to Reduce Alternative Minimum Tax

23rd June 2009
By kinal in Taxes
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The Alternative Minimum Tax is an integral part of our Federal income tax system. It is a separate, but parallel, system to what we refer to as the "regular" income tax. The AMT expands the amount of income that is taxed by including items that otherwise are tax-free and by disallowing many deductions.

Since the introduction of the AMT in 1969, it has become an ever-increasing burden on taxpayers, especially on the so-called middle class, as it has not been adjusted for inflation as the regular tax has. There are some things you can do, however, to reduce the impact of the AMT, but these have to be done before December 31, and the sooner you tackle them the better. Here are just a few tips:

- Analyze your itemized deductions, and your income, to see if you can adjust the timing of things in order to lessen your Alternative Minimum Tax. One example is when you sell stocks or exercise stock options.

- Take a serious look at your state and local tax burden, since state taxes are a major deduction for most people in computing your regular tax, but are not deductible in computing your AMT. People working in states with higher tax rates such as California, New York, or Massachusetts much more easily fall within the reach of the AMT. To the contrary, taxpayers living in Florida, Nevada, or Texas can more easily avoid the AMT because of their low state tax burden.

- Capital gains, even at their lower tax rate, increase your overall income and thus can cause you to lose a part, or possibly all, of your AMT exemption . You should always figure the AMT impact, therefore, when deciding to realize capital gains.

- Certain employee business expenses can trigger the AMT because, while they may be deductible for the regular tax, you will lose that deduction in computing the AMT. If possible, check in with your employer about the company's business expense reimbursement policy to see if you can work out an alternative arrangement that is more AMT-friendly for you.

- Paying attention to the timing of your investment income in general can help manage your AMT. Just remember that some income that is not taxable for the regular income tax is taxable for the AMT.

All these require a little bit of attention and making some calculations. gives you customized strategies to soften the blow of AMT and easy-to-use planning tools for making tax-savvy decisions to reduce your AMT throughout the year.

George Bauernfeind is with AMT Individual - providing information on Alternative Minimum Tax Planning . He writes articles to help the tax payers to pay less Alternative Minimum Tax. He recommend to use Alternative Minimum Tax Calculator to reduce Alternative Minimum Tax.
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