The Alternative Minimum Tax, which if the tax payer is subject to will change their tax planning since what is allowed as a deduction for ATM purposes is different than regular tax. AMT is designed to ensure higher income earns pay income tax by disallowing certain itemized deductions. The tax payer can still manage their tax liabilities to some extent if they are aware of their income and deductions and take the appropriate actions to avoid the AMT tax or if the AMT is unavoidable over payments on phased out deductions
The Alternative Minimum Tax phases out deductions based on income thresholds limiting both personal exemptions and itemized deductions. For 2014 the AGI thresholds are $250,000(singles), $279,000 (head of households), $305,000 (married filing jointly), and $152,525 (married filing separately). The personal exemption phase out reduces personal exemptions by 2% for every $250,000 or portion of $250,000 that the tax payers income exceeds the threshold for their filling status. For individuals filling married filing separately the reduction is 2% for every $125,000 over the threshold. Itemized deductions are phased out by 3% of the amount the taxpayers AGI exceeds the income threshold not to exceed 80% of the allowable deduction. The phase out for itemize deductions actually adds back the 3% to the tax payers AGI.
The Alternative Minimum Tax requires the tax payer to focus on different itemized deductions to reduce their tax liabilities than if the tax payer was not subject to AMT. Deductions that are disallowed for AMT purposes include state and local taxes, property taxes, interest on home equity debt not used to improve your primary residence, investment interest, professional fees, and unreimbursed employee business expenses. Avoiding or delaying payment of these items to the next year if the tax payer is not subject to AMT in the following year will allow the tax payer the benefit of these deductions. The taxpayer can still benefit from the home mortgage interest deduction, medical expense deduction, investment interest, charitable contribution deduction, casualty or theft deduction, or wagering losses. Knowing which deductions are allowed for AMT purposes allows the tax payer to select the appropriate deductions to time payments to reduce their taxable income for the year.
The tax code is complicated and tax decisions should be made with a tax professional. A proactive approach to filling income tax is the best way to avoid surprises and reduce the tax payer’s tax liabilities. Waiting till filing season is too late. Timing of income or deduction payments need to be made before year end since income must be received and deductible items must be paid for in the same year as the tax filing. Remember knowledge is power and in the case of income tax can save the tax payer significantly.
For more information visit Brian Ray Livesay’s Who Is Page here in the Journal
Brian Ray Livesay The Retirement Guardian
You may contact him at his office
Livesay Capital Solutions Inc.
1761 Hotel Circle S. Ste 360
San Diego, CA 92108
Call at 866-726-0725 / 619-281-8377
Or visit his Web Site www.retireestaxgroup.com