Money Matters/ Check your AMT liability before year end
Published 7:16 pm, Thursday, November 1, 2012
Unless Congress passes another "patch" to raise the income level, more middle and upper-middle income earners -- including you? -- will be subject to the AMT (alternative minimum tax). To find out more about how the AMT might affect you, let's follow Alan as he visits his tax adviser to discuss the current law and defensive strategies.
Alan's adviser agreed that getting an "AMT checkup" this year was a wise move. Although the AMT was intended to keep the wealthiest from avoiding liability under the regular tax system, many middle and upper-middle income earners have been subject to AMT in recent years because the triggers aren't inflation-adjusted.
Greater of the two
Once 2012 is over, his adviser began, determining whether this was "Alan's year" will be fairly simple. If his AMT liability exceeds his regular income tax liability, he'll have to pay the AMT.
Among other things, the AMT system disallows state income and property tax deductions. It also disallows some miscellaneous itemized deductions, such as investment advisery fees.
Currently, the AMT rate for both individuals and married couples filing jointly is 26 percent for those with AMT income up to $175,000 and 28 percent for those with AMT income of more than $175,000. The tax code does offer relief in the form of an AMT exemption -- $33,750 for individuals and $45,000 for married couples filing jointly. Both amounts are subject to phaseouts.
Typically, it's raised annually. But, as of this writing, Congress has passed no such "patch" for 2012, which means more people could be subject to the AMT this year. Check with your tax adviser for the latest information.
Alan's adviser assured him that, if it appeared he would owe AMT for 2012, he could take some defensive measures before year end. For example, Alan might accelerate income and short-term capital gains into 2012, enabling him to get more dollars taxed at the AMT rate -- which is lower than his regular federal income tax rate.
He also could defer some expenses. That may preserve some tax deductions for next year that he can't currently take under the AMT system. And even deferring some expenses that he could deduct for AMT purposes may be beneficial, because the deferral might increase the deductions' value because of the higher maximum regular tax rate.
Two sides of the coin
Alan's tax adviser agreed to crunch the numbers to see on which side of the regular versus AMT divide he appeared to be falling. And Alan promised to check in regularly regarding any tax law changes that could affect his situation.
This has been a general discussion meant for informational purposes only and is not intended as advice to anyone. Always discuss your tax and other financial matters with a qualified professional.
Norm Grill is a certified public accountant and managing partner of Grill & Partners LLC, with offices in Fairfield and Greenwich. He can be reached at: n.grill@GRILL1.com