Statistics indicate that 1 in 6 taxpayers will be hit with Alternative Minimum Tax in 2010 versus the 2009 rate of 1% of Americans- What a dramatic shift! If you wailed when we gave you the AMT bad news with your 2009 tax return, the odds are that you are ready to plan and plan and plan to avoid it! Those of you who weren’t hit, will probably be surprised next year. So, what is AMT? In technical terms ,it is a recomputation of your federal income tax bill at a flat 26% rate. (You pay the higher of the two bills between what your taxes are with your deductions and credits and the AMT rate.) . For those with AMT taxable income over $175,000, it becomes a flat 28% rate except those in the “married filing separately” category (for them, the 28% rate applies to income above $87,500). So, you need to carefully manage your income and deductions between years to minimize the impact of AMT. Under the AMT, you’re going to be taxed at a 26% or 28% rate. If you’re in a higher bracket under the regular tax computation, income acceleration will yield a smaller net tax under the AMT. Alternatively, deduction deferral to a year in which you’re in that higher bracket should give you a greater tax benefit. Although there is a long list of items that can trigger the AMT, for most individuals, the triggers include the following or a combination of the items listed below:
- Preference income from exercising stock options from an employer’s qualified plan, sometimes referred to as incentive stock options (ISOs);
- Having large itemized tax deductions;
- Having large miscellaneous itemized deductions;
- Large itemized deductions for state income or sales tax, real property tax and personal property tax;
- Large medical itemized tax deductions;
- Home equity debt interest deduction; and
- Interest income from private activity bonds.
Kiplinger has a great reference article on how to avoid AMT for those that are interested. We will continue to educate this on this item throughout 2010 and want you to have the knowledge needed to work with us to minimize your taxes in 2010! The IRS has also developed an AMT Assistant to help you understand what is happening.
