AMT Avoidance

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AMT Avoidance

Postby jcnelsn1 » Thu Jan 31, 2013 8:11 pm

I have done some searching and do not think there is much I can do, but....

I did some projections and it looks like I will owe about $5,000 of AMT for 2012. I am using the standard deduction. 33% bracket federal, 4.2% state. Vast majority of my income is from wages, with some passive loss (few thousand) from a rental property and some passive income from a real estate partnership. No other large deductions for losses, sales tax, etc. I have 5 exemptions and I am thinking that is what is getting me hit with AMT. Other than giving away a couple of kids :happy , anything I can do to avoid AMT going forward? Thanks
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Re: AMT Avoidance

Postby randomwalk » Thu Jan 31, 2013 8:15 pm

1. Earn less money.
2. Pay more interest on your mortgage.
3. Give more to charity.
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Re: AMT Avoidance

Postby grabiner » Fri Feb 01, 2013 12:45 am

Is the AMT due to timing item (such as depreciation)? I wouldn't expect AMT in your situation, but if you lost $5000 on the rental property according to the regular tax rules, and gained $20,000 according to the AMT rules, that might be the reason you are paying AMT.

If it is, then you may eventually be able to recover the AMT in a future year, so it isn't a complete loss. If your AMT is due to non-timing items (deductions disallowed under the AMT), you cannot take a credit. But if it is due to timing items (income or deductions recognized in a different year under the AMT and regular rules), then you can claim a credit for this year's AMT in a future year in which your tax under the AMT is less than under the regular rules.

A good reference is Fairmark's guide to the AMT.
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Re: AMT Avoidance

Postby Calm Man » Fri Feb 01, 2013 9:53 am

I just did my taxes and I will pay AMT for the first time in many years. The reason? Well, by throwing in various numbers I can see that as I INCREASE income, my AMT goes down (of course the total tax goes up). So the culprit was that I earned a fair amount LESS in 2012. It seems when you are at or around the 33% marginal bracket and have a reasonable amount of deductions and exemptions, you get hit with it. In essence, AMT is 28% x AGI - $3500 once over 175K. But at taxable incomes around 200K, the marginal rate is 33% and this is where the disparities begin. My only deductions are 2 exemptions and NJ state income tax (plus charity which doesn't count),. Those get completely obliterated.
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Re: AMT Avoidance

Postby dickenjb » Fri Feb 01, 2013 10:40 am

Think of it as a badge of honor - it means you make enough to pay AMT. (But not enough to NOT pay AMT).

Not much you can do for 2012 at this point unless you can make deductible TIRA contributions.
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Re: AMT Avoidance

Postby sscritic » Fri Feb 01, 2013 10:44 am

grabiner wrote:you may eventually be able to recover the AMT in a future year, so it isn't a complete loss. If your AMT is due to non-timing items (deductions disallowed under the AMT), you cannot take a credit. But if it is due to timing items (income or deductions recognized in a different year under the AMT and regular rules), then you can claim a credit for this year's AMT in a future year in which your tax under the AMT is less than under the regular rules.

I have no idea about timing rules. My wife sold an investment property. Our income shot up. We paid AMT. The next year my tax software filled out form 8801 for me and wrote a credit on what was then the equivalent of line 71
This is your current year refundable credit. Enter the result here and on your 2012 Form 1040, line 71

Looking at the form now, it may have been two years later, as there is a carryover before there is a refund.
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Re: AMT Avoidance

Postby jcnelsn1 » Fri Feb 01, 2013 11:04 am

dickenjb wrote:Think of it as a badge of honor - it means you make enough to pay AMT. (But not enough to NOT pay AMT).



Ha. A glass half-full perspective for sure.

grabiner wrote:Is the AMT due to timing item (such as depreciation)? I wouldn't expect AMT in your situation, but if you lost $5000 on the rental property according to the regular tax rules, and gained $20,000 according to the AMT rules, that might be the reason you are paying AMT.


I don't think it is a timing thing. My rental is my old house that I decided to keep when I made a cross country move. On a purely cash basis, I had only a nominal amount of positive income from it. I had a small loss after factoring in depreciation. I think the AMT hit is coming from the number of exemptions I have (but I don't think a family of 5 is out of the norm).

Calm Man wrote:I just did my taxes and I will pay AMT for the first time in many years. The reason? Well, by throwing in various numbers I can see that as I INCREASE income, my AMT goes down (of course the total tax goes up). So the culprit was that I earned a fair amount LESS in 2012. It seems when you are at or around the 33% marginal bracket and have a reasonable amount of deductions and exemptions, you get hit with it. In essence, AMT is 28% x AGI - $3500 once over 175K. But at taxable incomes around 200K, the marginal rate is 33% and this is where the disparities begin. My only deductions are 2 exemptions and NJ state income tax (plus charity which doesn't count),. Those get completely obliterated.


So are you thinking that the AMT hit is greatest at the lower end of the 33% bracket? I don't think that would account for it in my case as I am not at the bottom of the bracket.

It is what it is I guess, it is just kind of frustrating. I am basically a wage earner not doing anything unique or extraordinary to reduce my taxes under the regular system. I do not think I am the person the AMT originally was designed to affect.
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Re: AMT Avoidance

Postby randomwalk » Fri Feb 01, 2013 11:09 am

jcnelsn1 wrote:I am basically a wage earner not doing anything unique or extraordinary to reduce my taxes under the regular system. I do not think I am the person the AMT originally was designed to affect.


I think that's true. We get hit hard with AMT because we are blessed with generous salaries and pay pretty significant state income (on our wage income, which is our only income) and property taxes (on our one and only residence), neither of which is a particularly exotic itemized deduction or sophisticated tax avoidance technique.
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Re: AMT Avoidance

Postby SteelyEyed » Fri Feb 01, 2013 11:15 am

randomwalk wrote:
jcnelsn1 wrote:I am basically a wage earner not doing anything unique or extraordinary to reduce my taxes under the regular system. I do not think I am the person the AMT originally was designed to affect.


I think that's true. We get hit hard with AMT because we are blessed with generous salaries and pay pretty significant state income (on our wage income, which is our only income) and property taxes (on our one and only residence), neither of which is a particularly exotic itemized deduction or sophisticated tax avoidance technique.


Same here. We are paying a significant (to me) AMT this year. We are both W-2 wage-earners who work in a moderate-income-tax state, but live in a no-income-tax/high-property-tax state. I guess it's the price of living in an area that is more attractive to us.
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Re: AMT Avoidance

Postby MarkNYC » Fri Feb 01, 2013 11:43 am

jcnelsn1 wrote:I did some projections and it looks like I will owe about $5,000 of AMT for 2012. I am using the standard deduction. 33% bracket federal, 4.2% state. Vast majority of my income is from wages... I have 5 exemptions and I am thinking that is what is getting me hit with AMT. Other than giving away a couple of kids :happy , anything I can do to avoid AMT going forward? Thanks

If your income is mostly wages, you take the standard deduction and 5 exemptions, and are in the 33% bracket, those factors together will almost certainly put you into AMT territory, and there is probably nothing you can do to avoid it, although no one can give you a definitive answer without looking at all the items on your tax return.
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Re: AMT Avoidance

Postby Grt2bOutdoors » Fri Feb 01, 2013 12:22 pm

As depressing as it may be, I don't mind paying taxes as long as income is coming in. It sure beats the alternative, if you are lacking sufficient assets to replace said income.
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Re: AMT Avoidance

Postby interplanetjanet » Fri Feb 01, 2013 1:45 pm

jcnelsn1 wrote:I have 5 exemptions and I am thinking that is what is getting me hit with AMT. Other than giving away a couple of kids :happy , anything I can do to avoid AMT going forward? Thanks

I actually have sold my exemptions for my children to my ex in the past (using form 8332) as they don't help me at all on my Federal taxes due to AMT and only help a bit with the state; we worked out the net benefit and split it. If you're still married to the childrens' other parent this is probably not an option though.

AMT is generally a sign that you have reduced your income tax as much as is readily doable. It's not altogether a bad thing when looked at in this light.

I do not think I am the person the AMT originally was designed to affect.

I've thought the same thing at times - it's funny, AMT hits working single custodial parents harder that almost anyone due to how it handles HoH status, I found this out the hard way after my divorce. You learn to grin and bear it. Moving to a lower tax state may help if you itemize now.
Last edited by interplanetjanet on Fri Feb 01, 2013 2:17 pm, edited 1 time in total.
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Re: AMT Avoidance

Postby billern » Fri Feb 01, 2013 1:51 pm

randomwalk wrote:1. Earn less money.
2. Pay more interest on your mortgage.
3. Give more to charity.
Actually, it is often better to increase your income to avoid AMT. The higher marginal tax rates for ordinary income will increase the regular tax faster than the AMT tax.
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