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"You save 8 cents for every $1 of deductions" AMT whack
Old 02-18-2008, 05:45 AM   #1
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"You save 8 cents for every $1 of deductions" AMT whack

Was talking to a friend with a high income (I'd guess 200-300K). He was doing takes in Turbotax - entering deductions, etc.

He said a line came up "every additional $1 of deductions saves you $0.08 in taxes" - and then had some comment about AMT.

Could it be that low ?

To what deductions would that apply ? I'm assuming that would apply to all deductions (interest, etc) except chartible contributions.

Really a "different game" under those circumstances - zippo tax benefits for mortgage interest, etc.
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Old 02-18-2008, 03:52 PM   #2
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I've been through the AMT with TurboTax a few times, but I haven't had it say that. My favorite is when it just says "do you need to make any AMT adjustment in this line?" without explaining why you might need to do that!

Seems like you'd save more like $0.28/$1 or so with most deductions applying dirctly to AMT.

He might be having a problem with the limits on deductions that roll them back as your AGI hits that range (for the regular tax). My fed cap gains tax is more like at least 20% because each LTCG $1 decreases my deductions. You reach a point where you are fully limited and get back to the 15%, so it can pay to bunch your cap gains if you're going to reach that point normally. I don't think it ever gets as bad as $0.08/$1 though.

Dan
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Old 02-18-2008, 11:09 PM   #3
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Ask your friend what he thinks about all those 'tax cuts for the rich' we hear about. Unless he doesn't have a sense of humor.

I had some higher some cap gains this year. It's amazing how fast my taxes went up from last year. Credits and deductions mostly gone, plus the higher tax bracket.

-ERD50
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Old 02-19-2008, 02:15 PM   #4
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It may be possible somehow, but not in general. $1 of deductions will save you 26, 28, 32.5, or 35 cents of AMT depending on bracket. The schedule A deduction phase-out doesn't change that since the phase-out is a fixed $ and not a percent of deductions. One possibility would be if his deduction is not AMT allowed (but most are except state taxes), and so only saves state taxes.

ERD50: truly high income (and those without state income tax) are not likely to pay AMT.
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Old 02-20-2008, 05:53 PM   #5
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Quote:
Originally Posted by bongo2 View Post
It may be possible somehow, but not in general. $1 of deductions will save you 26, 28, 32.5, or 35 cents of AMT depending on bracket. The schedule A deduction phase-out doesn't change that since the phase-out is a fixed $ and not a percent of deductions. One possibility would be if his deduction is not AMT allowed (but most are except state taxes), and so only saves state taxes.

ERD50: truly high income (and those without state income tax) are not likely to pay AMT.
The key Phrase: "State Taxes". My 17k in state income taxes for tax year 2006 resulted in zero difference on my federal tax return due to AMT and the fact that State Taxes are NOT an eligible deduction for the AMT calculation. Now, if that isn't something that would p*ss you off, I don't know what does.
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