Wednesday, August 24, 2016

Alternative Minimum Tax Adjustments

Alternative Minimum Tax Adjustments
Under regular tax, deductions subtracted from AGI reducing  taxable income, lower the amount of tax, but under AMT specific deductions are not permitted.

Below is a list of deductions allowed under regular tax, but not permitted for AMT:
Standard deduction (for non-Schedule A filers).

• Personal exemption(s)
• Property tax
• State & local income tax
• General sales tax
• Personal excise tax
• Investment advisory fees
• Employee business expenses (Form 2106) itemized on Schedule A

While regular tax allows a deduction for mortgage interest on acquisition indebtedness and home equity indebtedness, AMT allows a deduction only on acquisition indebtedness.

Under AMT, medical & dental expenses are deductible when your expenses are more than 10% of AGI -- 7.5% of AGI for taxpayers 65 years or older.

Charitable donations ARE allowed under the AMT as an itemized deduction.

Lower tax rates that apply to qualified dividends & long-term capital gains for regular tax purposes apply for AMT purposes as well.

Most people's goal to reduce total tax, (the sum of regular tax plus AMT), is spoiled when deductions reducing regular tax are added back for AMT, increasing AMT. 
A plan to reduce or eliminate AMT, by decreasing deductions will cause regular tax to increase, resulting in a "no-win" situation—AMT goes down, but regular tax goes up,"Catch-22"

Sadly, there is little taxpayers can do to reduce their AMT exposure.