Practical Tax Strategies
The alternative minimum tax (AMT) is reaching a broader segment of individuals. Yet, many of these taxpayers are not aware of the implications of this tax. Even worse, some of their tax advisors are not as informed as they should be. By identifying items that trigger the individual AMT, taxpayers and their advisors have greater opportunities to develop strategies to avoid the special tax. The AMT is essentially a parallel tax system that involves a separate tax calculation from the regular income tax. The AMT calculation is then compared to the income tax figured under the normal manner. The taxpayer pays the higher of the two amounts. With proper planning, many individuals can avoid or at least reduce their AMT liability. For best results, these individuals should enlist the aid of a tax professional to perform pro forma calculations throughout the year and identify the AMT potential of transactions sufficiently in advance for the taxpayer to plan accordingly. In instances where the AMT-producing transaction is still worthwhile, the taxpayer can take steps to raise the necessary cash to pay the tax.