Alternative Minimum Tax Adjustments

[cajones]

My most dreaded of all taxes. Does anyone know what adjustments are possable to try to get me and my wife under that 62K mark (or whatever it is). I am trying to not have to be an automatic AMT payer like last year. I made less money but I have some more to go. How can I get under the touchstone for the AMT this year? Thanks guys. Great board!

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[Bees Knees]

Welcome to the board.

There are a number of factors that kick you into AMT. The $62,550 exemption for MFJ is only one factor. Other factors include Taxes deducted on Schedule A, job expenses, personal exemptions, and a number of other tax preference items.

The only way to know how to keep you out of AMT this year is to know what caused you to be subject to it last year. Your average taxpayer making over the exemption amount is not going to automatically be subject to AMT. Usually, it is a combination of things that cause it. Without know details, we really can't help too much.

[JG EA]

Another thought

Remember that usually if AMT applies, it is still appropriate and beneficial to take the deduction that triggers the AMT. If you figure the tax without misc deductions for example, and with misc. deductions + AMT you will still save money on your taxes by taking the misc deductions.
Don't forget to itemize if you have contributions or mortgage interest to buy build or improve. These can save you AMT tax.

[cajones]

more info...

Thanks for the responses,

Sorry about the lack of all of the info. In a nutshell, last year my wife and I made more money than we ever had before. She works part time in retail and through her we get health insurance, stock inc. etc... I worked for a company where I was an outside sales rep. I was responsable for all of my own expenses but was still technically an employee of the company. We made just over 6 figures that year. This year we won´t make quite that much because we quit our jobs and moved to Ecuador temporarily to do some missionary work. We don´t own a home and our interest income is next to nothing. All I have come tax time is my deductions for work.....mileage, meals with clients, gifts, etc... No health expenses and no home deduction. So is there any way to reduse my burden? I really get slammed into a catagory this year that I don´t deserve. Thanks guys!

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[Bird Legs]

Question

You say you were TECHNICALLY an employee of the company. Did you receive
a W-2 or a 1099?
If you received a W-2 then your unreimbursed business expenses are deductible
on Sched. A form 2106. But, you say you do not itemize.
If you received a 1099 then you were not an employee.

[Bees Knees]

The reason you are being hit with AMT is because you are deducting employee business expenses (car mileage, meals, client gifts, etc.). AMT basically says you can deduct only so much of that before it becomes non-deductible.

For example, lets say that with your level of income, and zero business deductions, your tax is $10,000 with no AMT.

Now let’s say that with that same level of income, and $2,000 of business deductions, your tax is $9,500 for both regular and AMT purposes.

That means if you have any more deductions than $2,000, it won’t matter. $3,000 in deductions would reduce regular tax to $9,250, but AMT would bring the tax back to $9,500. Thus, instead of viewing AMT as a tax increase, AMT is merely a brick wall. No additional deductions will help, as any deductions in excess of a certain amount are cancelled out by AMT.

AMT acts as a limitation to the amount of business deductions you can take at any particular income level.

The way around it is to have your deductions reimbursed under an accountable plan, rather than you paying them out of pocket. You might say, yeah, but my employer doesn’t want to reimburse these expenses.

Well, your employer wouldn’t mind reimbursing the expenses if income was reduced by the same amount.

For example, let’s say in our example above, you make $100,000 of income with $2,000 of expenses, for a net profit of $98,000. That is all the further AMT will let you go by taking your own deductions. If you have $3,000 in deductions, the excess $1,000 does you no good because AMT kicks in on the extra $1,000. You still spent the extra $1,000, and your net profit is still $97,000, but you are taxed as though your profit was $98,000 because AMT won’t give you the extra $1,000 in deductions.

Well, why not reduce your wages to $97,000, and have your employer reimburse you for the other $3,000 of expenses you paid under an accountable plan. Your employer still pays $100,000 ($97,000 wage + $3,000 reimbursed expenses), you still profited $97,000 ($97,000 + $3,000 minus $3,000 actual expenses), but now you are only taxed on $97,000 instead of $98,000 because AMT does not kick in.

That is the only way to make the same amount of money after business expenses, and not be subject to AMT.

[cajones]

I recieved a W 2. I itemize because most of our income comes from me and I have TONS of expenses. It seems however that itemizing does me next to no good under AMT. Is that true?

[BOB W]

Alt Min Tax

if your income drops or expenses drop you may rec've an Alt Min Tax Credit in the year that it drops. I don't know who is doing your return, probably you, so you need to complete the proper form to develop this credit, 8801.

My experience has been that you will get some of it back, not all.

[Unregistered]

I believe the minimum tax credit is allowed only for the AMT that is attributable to deferral items such as ISO preferences and passive activity adjustments.

Exclusion items such as employee business expenses and taxes will not lead to any minimum tax credit. It appears this taxpayer only has exclusion items so I don't see any use for Form 8801.

New York Enrolled Agent

[Snaggletooth]

Find the source

It's like looking for the source of a strange odor in your house. It may not be obvious and in sight but if you follow your nose you will find it.

Certain specific things are what causes AMT - not just income. This is a growing problem as the "Minimum Tax" was originally legislated for the very wealthy who reduce their income with certain tax breaks. But now the AMT affects millions.

Certain itemized deductions, accelerated depreciation, tax preferences and large capital gains are typical causes of the tax. To find out what's doing it, analyze your form 6251 from last year. The form works as follows: starts with your income, ADDS BACK these adjustment items, and then applies a percentage to arrive at a minimum tax level. The "minimum tax" is really a misnomer - it actually shows up on your tax return as the difference between this "minimum tax level" and your otherwise-calculated "normal" tax. It might be better described as a "minimum tax differential." From the standpoint of figuring the tax, once this minimum tax level is established, nothing you do to your "normal" tax can save you any money, because the differential just brings you back to the same total tax.

Out of all the verbage above, note my emphasis on those items which get ADDED BACK to your income. These are the things that create this AMT. Not knowing any more about your situation, Bees Knees has identified a possible source above -- if this is creating the problem, the avoidance is as simple as your employer creating an "accountable plan." Your employer saves on payroll taxes as well.