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    #1

    AMT - no preference items

    I have a client who it seems is being hit with AMT. He had some wages (he worked part of the year), then retired. So he also has some social security. He took his 401K money out and bought 2 houses. One he gave to his son and his family. The other he will give to his other son when he finishes his schooling. He told them don't expect anything when I am gone, you are getting it now.

    Because of the high AGI, he can't itemize even though he had a lot of medical bills. He has no mortgage interest. Only taxes and contributions.

    There doesn't seem to be anything to put on the 6251 to reduce his AMT.

    I DON'T UNDERSTAND. I thought AMT was to make sure people paid taxes who were reducing their income with large deductions or losses. This isn't the case. So why is he having to pay more tax just because he has higher income? He is already in a high tax bracket.

    I guess I am really dense or have never had AMT explained to me so that I could really understand it. HELP please.

    Linda, EA
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    #2
    Originally posted by oceanlovin'ea View Post
    I have a client who it seems is being hit with AMT. He had some wages (he worked part of the year), then retired. So he also has some social security. He took his 401K money out and bought 2 houses. One he gave to his son and his family. The other he will give to his other son when he finishes his schooling. He told them don't expect anything when I am gone, you are getting it now.

    Because of the high AGI, he can't itemize even though he had a lot of medical bills. He has no mortgage interest. Only taxes and contributions.

    There doesn't seem to be anything to put on the 6251 to reduce his AMT.

    I DON'T UNDERSTAND. I thought AMT was to make sure people paid taxes who were reducing their income with large deductions or losses. This isn't the case. So why is he having to pay more tax just because he has higher income? He is already in a high tax bracket.

    I guess I am really dense or have never had AMT explained to me so that I could really understand it. HELP please.

    Linda, EA
    Itemize anyway.
    As a recent post pointed out, with high income the standard deduction is lost, so Itemize anyway. If the medical part is high enough it will help. Contributions help. So, even if you normally wouldn't be able to itemize force the itemization. Taxes won't help, 2% area won't help.

    I've seen AMT kick in even with modest income when clients had a lot of kids! Just the way it is.

    It also looks as if you'll need to do a gift tax return for your client.
    JG

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      #3
      i guess that is what is puzzling to me. He gets his standard deduction. Nothing is lost. So itemizing won't help it will just increase his taxable income.

      I need to be able to explain this to him and I don't know how.

      Linda, EA

      Comment

        #4
        Originally posted by oceanlovin'ea View Post
        i guess that is what is puzzling to me. He gets his standard deduction. Nothing is lost. So itemizing won't help it will just increase his taxable income.

        I need to be able to explain this to him and I don't know how.

        Linda, EA
        Yes, he has the standard deduction on the 1040. No he doesn't get the standard deduction on the AMT form. Read the lines on the 6251. Itemizing might help if he has the allowed deductions.
        JG

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          #5
          Look at the Form

          Look at the Form to see what items he can deduct for regular tax but get added back for AMT, such as his standard deduction. Then tell him.

          Some of my clients really don't want details; they let me worry about those. I tell them that AMT is an alternative tax system and that like most things governmental we pay whichever tax is the most favorable to the government. Those that want details, I use the form to show them what items cost them more.

          Comment

            #6
            ok.

            I forced the program to itemize. The force button was in a different place and when I found it, the AMT went down a couple of thousand dollars.

            The taxes were the only thing that helped him.

            Still not sure how to explain it to him. And, JG, I will do the gift tax return. He bought a house and gave it to one of his sons last year for sure. He bought another one but I am not sure if he put it in the other son's name yet. He was waiting for him to finish school and start working.

            Thanks,

            Linda, EA

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