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What is the AMT Tax?

The alternative minimum tax (AMT) – sometimes referred to, not whimsically, as the “added misery tax” – is a highly complex levy originally structured to ensure the payment of at least something by even the wealthiest individuals able to avail themselves of the most sophisticated tax breaks.

To make payment of some taxes more likely, the AMT counts more items as reportable income and allows fewer write-offs than under the regular method used to calculate liability. AMT disallowances include exemptions for dependents, the standard deductions, and such itemized deductions as:
  • State and local income, property, and sales taxes, and most miscellaneous expenses.
  • A broad-ranging category that includes things like dues for unions and professional associations.
  • Employment-related educational expenses.
  • Job-hunting expenses.
  • Payments to investment advisors and return preparers, or for publications that help with tax planning.
The AMT also prohibits deductions for interest on home-equity loans obtained for reasons other than to acquire, construct, or substantially improve first or second homes.

Strategies to sidestep the AMT. If you choose to ignore form 6251 or the AMT Tax, the penalty can be up to a maximum of $25,000. The best defense – the only defense – against the AMT is to plan for it. First, know that the AMT can make some traditional tax advice useless or even harmful. For instance, the long-established year-end advice is to accelerate the payment of deductions into the current year and defer the receipt of income to a later year whenever possible. But those kinds of maneuvers should never be made without a meticulous evaluation of the numbers before 2015 closes. Once beyond Dec. 31, there’s little that can be done to avoid or minimize damage, other than to make deductible contributions to traditional IRAs and other retirement plans that lower taxes for 2015. 

Still have questions or concerns regarding the AMT Tax?  Please contact our office for further advise at 440-926-9300.

Written by: Julian Block

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