How Differing Levels of Income Affect the Alternative Minimum Tax ...

How Differing Levels of Income Affect the Alternative Minimum Tax

Two things strongly factor into the formula for the Alternative Minimum Tax (AMT).? One is the type of investments you have.? Some investments figure more consequentially in the AMT.? Therefore, the structure of your portfolio is very important in determining how much or how little the AMT will affect you.? The second factor is, of course, the amount of your investment.

Investors earn income on dividends, interest, capital gains, partnership, or real estate investments.? This income is variable depending on the amount of cash, bonds, stock, and other investments in one?s portfolio.? Controlling the timing of income and the amount of income can drastically affect how you prepare for the AMT.

By incrementally increasing your income, you can work your way out of the Alternative Minimum Tax.? You can test this theory.? Increase your ordinary income by ,000, not your qualifying dividends or capital gains.? If you?re in the 35% tax bracket for regular taxes and the 28% tax bracket for Alternative Minimum Tax, the ,000 added income would increase your regular tax by 00 and your AMT increases by 00.? That reduces the AMT by 0.

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The actual difference would vary because of exemptions and deductions within the calculating of your regular tax and your AMT.? But the savings are there, in proportion to those variables.? Your state tax liability will increase as your income increases and this will need to be calculated in planning for the AMT, as well.

The changes in income we are discussing are changes in taxable income.? That is, all of your gross income minus deductions.? This applies to allowable deductions for both regular taxes and the Alternative Minimum Tax.? So, if your charitable deductions were to rise to ,000 dollars, it would be the same as your income increasing by ,000.

Since the only variable you can change is your income, you should move that income into a year you are paying the Alternative Minimum Tax.? Your tax rate in the AMT will be 28%, up to the point where you are out of the Alternative Minimum Tax and paying a regular tax rate of 35%.

If you are facing the AMT because of the type and/or amount of your investments, you might do well to contact a tax specialist or your financial planner. Together, you can discuss strategies involving your investment portfolio that might be helpful to you in regard to the Alternative Minimum Tax.

Chintamani Abhyankar, is a well known expert in the field of finance and taxation for last 25 years. He has written many books explaining inside secrets of the magic world of personal finance. His famous eBook Stop donating your money to IRS which is now running in its second edition, provides intricate knowledge and valuable tips on personal finance and income tax.

Source: http://financemanagement.w-website.com/blog/how-differing-levels-of-income-affect-the-alternative-minimum-tax/

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