AMT better known as Alternative Minimum Tax has reared it’s ugly head more frequently than in years past. Given it’s pesky recurring appearances we wanted to explain just what this tax is and a few tactics to possibly lessen its tax teeth.
What is AMT?
Formed from a fury protest of a treasury secretary who noticed high income earners in the late 1960’s not paying any taxes.
Originally known as a “Minimum Tax” passed by legislators in 1969 and enacted in 1970, the original goal was to catch those with huge write-offs that appeared by lawmakers to be abusing the system.
AMT is a secondary tax established for tax payers with higher income, that for one reason or another were paying no income taxes.
This from the IRS, may best sum it up:
“Under the tax law, certain tax benefits can significantly reduce a taxpayer’s regular tax amount. The alternative minimum tax (AMT) applies to taxpayers with high economic income by setting a limit on those benefits. It helps to ensure that those taxpayers pay at least a minimum amount of tax.”
Why am I getting hit with AMT?
The most likely reason is your income is right in the sweet spot for AMT and you have significant deductions.
If your joint income is between $170k and $313k (Single just over $100k), you are square in the cross hairs of AMT. Being outside of these ranges under certain circumstances may not provide you protection from AMT taxes.
If you have income in the cross hairs and you have significant deductions, you are likely paying AMT!
What can I do about AMT?
If your income is between the above mentioned parameters, and there is nothing you can do to adjust your income, then it may be a good idea to defer some of your deductions if you can, into a different tax year.
Look to put off items that may create further AMT, un-reimbursed business expenses, or other possible delayed write offs may be better utilized in a different tax year, may help.
If you see your income falling in this range, deferring income or aggregating income may be a possibility. While we rarely invite extra income, this may be the one time it makes sense to do so. Raising your income my help your AMT liability.
In a world of knowledge is power, we understand that there may not be a lot you can do about AMT taxes, however the surprise may not be as great and minimization may occur with the above information in mind!
Have a Great Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth