Will You Be Hit with AMT?

The end of the year is approaching so it's time to identify tax planning moves you should make before December 31st.

The first step is for our firm to make a projection of your income, as well as tax deductions and credits. If the projection shows you will be liable for the alternative minimum tax (AMT), there might be steps you can take now to reduce your tax bill.

For example, it's generally a good idea to reduce your adjusted gross income by contributing the maximum amount allowed to a retirement plan or traditional IRA.

One thing you probably don't want to do is prepay some of next year's property tax and state income tax bills because these expenses are disallowed in computing the AMT.

Who is liable for AMT? The calculations are complex but taxpayers with certain items on their tax returns are likely to trigger the tax.

For example, you have a greater-than-average chance of owing AMT if you exercise incentive stock options, claim many dependents, pay a fair amount of state income tax, or have large long-term capital gains.

The alternative minimum tax (AMT) was originally enacted to make sure high-income people who take advantage of multiple tax breaks don't escape paying tax to Uncle Sam. These days, however, middle-income taxpayers are being hit with AMT.

These are just a few of the issues involved. When it comes to the AMT, smart year-end planning can help you reduce or avoid the amount of tax you'll pay. Contact us before the end of the year for assistance with this tax, which can really sneak up on you.