Snared by AMT

[RockyMtn]

Got my turbotax downloaded the other day and since it was actually raining here in Az this morning thought I would drop in some numbers and see what spits out.

Lo and behold, unless I entered something wrong, it looks like I am going to get hit with an AMT tax of about $8k. A first for me.

Sounds like I'm going to have to start bunching deductions.

Any clues/tips for staying out of the AMT?

 

[phil1ben]

I have never seen a provision of the Tax Code result in the very opposite of the original intended tax policy like the AMT. It was first passed to tax high income earners who did not pay their "fair share" of taxes because of high deductions. Now high income taxpayers are not subject to the AMT but middle-income taxpayers are drawn in by its provisions. If your income is high in proportion to your deductions the AMT does not apply. High income earners are still subject to 39.7% federal, state tax, phase-out of exemptions and the Pease Phase-Out of deductions which together result in an absurdly high tax rate......but no reason to beat that dead horse again.

Don't mean to high-jack your post but this is just another example of Congress dickering with the Code without reviewing its implications over time.

 

[audreyh1]

Avoid high qualified dividends and long term cap gains relative to your ordinary income.

OR

Many deduction that are valid in your regular tax, are not allowed under AMT, and when someone has high deductions, they can sometimes get hit with the AMT.

 

[RockyMtn]

Avoid high qualified dividends and long term cap gains relative to your ordinary income.

Unfortunately have both of the above this year. Need to plan better next year. Had to do a little AA rebalancing this year which is what I think got me caught up in the AMT.

Ordinary income will go down next year so maybe that will solve the problem.

 

[audreyh1]

Unfortunately have both of the above this year. Need to plan better next year. Had to do a little AA rebalancing this year which is what I think got me caught up in the AMT.

Ordinary income will go down next year so maybe that will solve the problem.

When rebalancing, see what you have to do to sell your highest cost shares first.

Pushing income into the next year can help if years aren't well balanced income wise.

One can plans and make a few adjustments here and there, but at some point, if you're just making a certain amount of money, and AMT is gonna getcha.

 

[FIREd]

I find the AMT so confusing. In the past few years, we had to pay it because of high state income taxes. But this year our income is much higher yet Taxcaster says we won't have to pay the AMT.

 

[audreyh1]

I find the AMT so confusing. In the past few years, we had to pay it because of high state income taxes. But this year our income is much higher yet Taxcaster says we won't have to pay the AMT.

It tries to target income (actually the taxes paid) brought "too low" by use of large deductions. So if the ordinary income is high, you are less likely to owe AMT.

 

[LOL!]

I used TurboTax years ago to avoid AMT. I think AMT is mostly caused by too many of the wrong kind of deductions and not so much by LT cap gains.

Within TT, I just increased/decreased charitable deductions and property taxes until I got my AMT down under about $20. The result was that I increaed charitable contributions that year, but paid only half my property taxes that year in December. Then a week later in January I paid the rest of my property taxes.

The original AMT problem was that my wife forgot to pay property taxes the previous December, so we paid them in January. Thus by paying again 11 months later in December, we would've had 2 years' worth of property tax deductions which bumped us into AMT territory. Instead, we did 1.5 years, then 1.5 years the following year, so over the course of the 3 years we had paid 3 years worth of property taxes.

Nowadays, we have lower income, so no chance of AMT. But to save a couple thousand dollars in taxes we do bunch deductions so that we itemize in odd years and make double the deductions in even years.

 

[Senator]

If it makes you feel better, some of that money will likely go to help support the ACA, which many people here take advantage of. And many more here will in the future.

Thank you for your support!

 

[MichaelB]

Let's not go there...

 

[mathjak107]

we too get hit with the amt when we have high capital gains . we got hit this year with it. the bad thing is we end up getting hit 2 years in a row.

the first year we trip it on income/capital gains. the following year when we do not sell off any real estate assets we hit it on the state and local tax deduction from what we have to pay in the year before.