AMT stands for Alternative Minimum Tax, which is a special tax that is used to determine taxable income. When it comes to AMT tax planning, you have to be very careful with your strategies, especially when you are trying to avoid the taxes. These taxes are usually imposed on high-income households. This alternative tax system has been designed in a way to ensure that those households who otherwise manage not to pay any taxes can be forced to pay at least a certain minimum amount of income tax. Doing an advance planning for this type of taxes can be very tricky because it is not a credit or deduction measured against specific items on tax returns; rather it is just an alternative system.
How To Determine AMT Tax?
The first thing that is very important for you to learn about AMT tax planning is how AMT taxes can be determined. There are certain steps that you need to follow in this regard. First of all, you have to find out whether you are subject to this type of tax or not. One way to do this is by using the online calculator provided on the official website of the IRS (Internal Revenue System). In order to get a better idea, you will also have to do a thorough study of the IRS 1040 instructional worksheet. As per the US taxation laws, you can be subject to AMT taxes if your total income (plus any adjustments as applicable) exceeds 50% of the exemption amount allowed for Alternative Minimum Tax. In the year 2009, the exemption amount allowed for Alternative Minimum Tax was $35,475 for married people when filed separately, $70,950 for married people when filed jointly, and $46,700 for individuals (or for head of the households). You can use a simple formula to calculate the AMT tax; you just have to deduct the exemption amount (whatever applies in your case) from the addition total of 26% of income below $175,000 and 28% of income above $175,000.
How To Avoid Amt Tax?
While you are working on your strategies regarding AMT tax planning, the next big thing that you have to focus on is how you can avoid paying these taxes. There are plenty of things that you can do in this regard. For example, you must make the payments toward local and state taxes at such a level that should not force you to owe, but also should not overpay the owed taxes. This strategy can help you to avoid these taxes for the filing season. If not, it will at least help you to minimize the Amt tax amount to a great extent. You are also recommended not to prepay property taxes for the following year; instead, you should pay it only when it is due. This strategy will also help you avoid Amt taxes by keeping your state deductions to a very low level. Another great way to avoid AMT taxes is to implement certain strategies in a way that should allow you to keep your taxable income outside the range of $150,000-to-$415,000. If the large distributions are likely to push you in the AMT tax bracket, it is not at all a wise idea to spread the large distributions out; instead you must consider claiming the same all in one year.
When it comes to AMT tax planning, it is very important for you to keep in mind that some of these strategies may not work as effectively as they sound in theory. As per the records provided by the IRS, AMT taxes apply to approximately fifteen percent of US taxpayers who come within the income bracket of $75,000-$100,000.