Saturday, December 30, 2006

ALTERNATE MINIMUM TAX









ALTERNATE MINIMUM TAX (FORM 6251)
I’ve seen numerous articles complaining about the alternate minimum tax.
The AMT was designed to make sure wealthy individuals did not escape taxes by taking advantage of certain tax preferences. Mostly the complaints are about how it targets lower and lower incomes. None of the articles seem to give you a clear idea of whether you may be a victim of the AMT.
EXEMPTIONS AND PHASEOUTS:
If you file single or HOH, you get a $ 42,500 exemption. Above that, the exemption begins phasing out. The phaseout range is $112,500 to $282,500. What that means is that the $ 42,500 is reduced at incomes above $ 112,500, and is not completely lost until you reach $ 282,500..

If you file jointly or as a Qualified Widow/widower your exemption is $62550 and the phaseout range is $150,000 to $ 400,200.

If you are married filing separately, your exemption is $31,275 and the phaseout range is $ 75,000 to $ 200,100.

NOT ALL INCOMES ABOVE PHASEOUT ARE SUBJECT TO AMT
If you make MORE than the phaseout figure, do you always owe the AMT?
Not necessarily. I’ve prepared returns with AGI exceeding $ 1 million with no AMT due. It only affects certain “AMT items” of income and expense which you may or may not have.


ITEMS AFFECTING THE AMT
Here are some items which could result in your owing AMT.
Medical and dental expenses (the 7½ % deduction from AGI changes to 10%)
State income tax or sales tax deductions are added back to income
Your ‘miscellaneous’ deductions on Schedule A are added back to income.
Most 200% DB depreciation deductions are recomputed at 150% DB

There is a long list of other less common items for AMT such as depletion, intangible drilling cost deductions, circulation costs, and passive loss limitation changes.

Link to IRS forms and publications:
http://www.irs.gov/formspubs/index.html
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This information is not intended to be advice to the recipient. In compliance with Treasury Department Circular 230, unless stated to the contrary, any Federal Tax advice contained in this Blog was not intended or written to be used and cannot be used for the purposes of avoiding penalties.





1 comment:

Ulli Niemann said...

I appreciate your interesting article as well as your comments to my new blog. That was very helpful. I was not able to find your e-mail, maybe you can contact me (ulli@successful-investment.com).

Thanks.

Ulli...