Years of Inflation and the AMT Pose a Growing Tax Threat

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Your tax will be the higher of the tax computed the regular way or the Alternative Minimum Tax. Anticipating when the AMT will affect you is difficult, because it is usually the result of a combination of circumstances. In addition to those items listed above, watch out for transactions involving limited partnerships, depreciation and business tax credits only allowed against the regular tax. All of these can strongly impact your bottom line tax and raise a question of possible AMT. Tax Tip: If you were subject to the AMT in the prior year and had a state tax refund in that year, part or all of your state income tax refund from that year may not be includable in the regular tax computation. To the extent you received no tax benefit from the state tax deduction because of the AMT, that portion of the refund is not includable in the subsequent year’s income.

As part of earlier tax cuts, the AMT exemption amount was temporarily increased through 2007. Although Congress has been debating what to do with the AMT, so far (through December 2007) they have taken no action for the 2008 tax year. Thus, the exemptions will be substantially reduced for 2007, causing more taxpayers to be affected by the AMT. The IRS estimates that those affected by the AMT will increase by 13.8% in 2008.

AMT EXEMPTION PHASE OUT

Filing Status            Exemption Amount            Income Where Exemption in Totally Phased Out

Married Filing Jointly

 

Income Where Filing Exemption Exemption Is Status Amount Totally Phased Out Married Filing Jointly $45,000 $330,000 Married Filing Separate $22,500 $165,000 Unmarried $33,750 $247,500

AMT TAX RATES

AMT Taxable Income Tax Rate 0 – 175,000(1) 26 % Over 175,000(1) 28 % (1) $87,500 for married taxpayers filing separately

 

 

Anticipating when the AMT will affect you is difficult, because it is usually the result of a combination of circumstances. In addition to those items listed above, watch for transactions involving incentive stock options, limited partnerships, and tax-free income from private activity bonds, depreciation, and tax credits. All of these can strongly impact your bottom line tax and raise a question of possible AMT.

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E Thomas Associates Inc. is a registered investment advisor in Kentucky.
Dave Smith & Tony King are Registered Representatives of and securities are offered through Dalton Strategic Investment Services, Inc., member FINRA & SIPC. 6408 River's Edge Rd, Greenville, OH 45331

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