how to avoid $75k AMT tax hit next year?

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gips
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how to avoid $75k AMT tax hit next year?

Post by gips »

Met w our accountant, he projects $75k in AMT taxes next year. His rule of the thumb is that we need to generate an additional 3x$75k=$225k in ordinary income to avoid the tax. any ideas besides a 2nd job?

tia
Last edited by gips on Thu Apr 09, 2015 7:19 pm, edited 1 time in total.
Grt2bOutdoors
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Re: how to avoid $75k ATM tax hit next year?

Post by Grt2bOutdoors »

gips wrote:Met w our accountant, he projects $75k in ATM taxes next year. His rule of the thumb is that we need to generate an additional 3x$75k=$225k in ordinary income to avoid the tax. any ideas besides a 2nd job?

tia
That doesn't sound right - you are either paying $75K in total combined AMT tax or a lower figure based on regular tax rates. You can not be paying $75K in AMT in addition to regular income tax rates unless you have significantly large tax shelters where your itemized deductions from paying state and local taxes, property taxes along with numerous deductions. What exactly did the accountant say to you?
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AWH_CPA
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Re: how to avoid $75k ATM tax hit next year?

Post by AWH_CPA »

where you in AMT this year (2014)? If so then nothing to see here. If not then thats where you lost your ability to plan.
johnubc
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Re: how to avoid $75k ATM tax hit next year?

Post by johnubc »

can you share the income amount to go along with 75k in AMT
livesoft
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Re: how to avoid $75k ATM tax hit next year?

Post by livesoft »

Invest ten million dollars in a taxable bond fund or perhaps a REIT fund. Either should create more than $200K in ordinary non-qualified dividends.
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Topic Author
gips
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Re: how to avoid $75k ATM tax hit next year?

Post by gips »

>>That doesn't sound right - you are either paying $75K in total combined AMT tax or a lower figure based on regular tax rates. You can not be paying $75K in AMT in addition to regular income tax rates unless you have significantly large tax shelters where your itemized deductions from paying state and local taxes, property taxes along with numerous deductions. What exactly did the accountant say to you?

sold business in 2014. The accountant optimized the amount I paid in estimated state taxes in december of 2014 to avoid AMT for that tax year. However, the amount due apr 15 is projected to push me $75k into AMT for tax year 2015.
nerdinvestor
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Re: how to avoid $75k ATM tax hit next year?

Post by nerdinvestor »

gips wrote:Met w our accountant, he projects $75k in ATM taxes next year. His rule of the thumb is that we need to generate an additional 3x$75k=$225k in ordinary income to avoid the tax. any ideas besides a 2nd job?

tia
Can someone help me understand the reasoning here? That if you generate an additional $225k of income, it'll be essentially "tax free" since you would have paid the 75K AMT tax anyway?
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slow n steady
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Re: how to avoid $75k ATM tax hit next year?

Post by slow n steady »

I would just go into the bank and get the cash. How many times a day do you have to take cash from the ATM? Exactly what type of business was this anyways? :D
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gips
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Re: how to avoid $75k ATM tax hit next year?

Post by gips »

slow n steady wrote:I would just go into the bank and get the cash. How many times a day do you have to take cash from the ATM? Exactly what type of business was this anyways? :D
:happy sorry, it should have been amt tax
denovo
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Re: how to avoid $75k AMT tax hit next year?

Post by denovo »

Makes less money. Go re-negotiate your sale and sell your business for less.
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grabiner
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Re: how to avoid $75k ATM tax hit next year?

Post by grabiner »

gips wrote:sold business in 2014. The accountant optimized the amount I paid in estimated state taxes in december of 2014 to avoid AMT for that tax year. However, the amount due apr 15 is projected to push me $75k into AMT for tax year 2015.
Is there a timing issue (that is, some profits from selling the business are realized in different years for AMT and regular tax?) If it is, then you will get back the amount of the AMT due to timing issues in future years by claiming a credit for the difference between your regular tax and the tax figured under the AMT rules. If there is no timing issue (that is, the only reason you owe AMT is that you have a lot of disallowed deductions, such as $300K paid in state income tax), then the AMT is a total loss.
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nerdinvestor
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Re: how to avoid $75k ATM tax hit next year?

Post by nerdinvestor »

nerdinvestor wrote:
gips wrote:Met w our accountant, he projects $75k in ATM taxes next year. His rule of the thumb is that we need to generate an additional 3x$75k=$225k in ordinary income to avoid the tax. any ideas besides a 2nd job?

tia
Can someone help me understand the reasoning here? That if you generate an additional $225k of income, it'll be essentially "tax free" since you would have paid the 75K AMT tax anyway?
Just wanted to follow up on this - why would generating additional income be better here?
Wagnerjb
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Re: how to avoid $75k ATM tax hit next year?

Post by Wagnerjb »

nerdinvestor wrote:
gips wrote:Met w our accountant, he projects $75k in ATM taxes next year. His rule of the thumb is that we need to generate an additional 3x$75k=$225k in ordinary income to avoid the tax. any ideas besides a 2nd job?

tia
Can someone help me understand the reasoning here? That if you generate an additional $225k of income, it'll be essentially "tax free" since you would have paid the 75K AMT tax anyway?
I think you may have misinterpreted the OP's comment (or the OP misinterpreted the CPA's comments). When one is paying the AMT surtax, they may be in an income range where the AMT exemption is phasing out - and thus their AMT marginal rate is 36% or possibly slightly higher due to other issues. Their "regular" tax rate may only be 33%. Thus, they are paying the AMT surtax.

When their income rises to a certain point, they are beyond the phaseout of the AMT exemption and their AMT tax rate falls back to 28% (while their regular rate is 33% or 36%). As their income rises from this point, the AMT surtax shrinks. To be clear, their total tax continues to rise (at 28%), but the surtax gradually disappears.

To "avoid this tax", one will earn more money. But that simply means your incremental earnings are taxed at 28% (for a limited amount of income) rather than 36%. Note that "avoiding the surtax" is not the same as the incremental income being tax free.

Best wishes.
Andy
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