AMT Estimator

Issue 7 • December 2007 

The Alternative Minimum Tax (AMT):

The AMT is an alternative, separate tax calculation created in 1969 to make sure the wealthiest Americans paid a fair amount of taxes. Unfortunately, the law of unintended consequences occurred as with many of the governments solutions and the tax could now reach as many as 23 million Americans.

Why you may ask is a tax designed to hit the wealthiest affecting the middle class? Elements of the AMT have not been adjusted for inflation while the regular tax has, this means that if an individuals income tax just keeps up with the annual rate of inflation his or her income tax would remain constant in real terms while the potential AMT liability would continue to increase.

Items that could trigger AMT:

  • Exemptions: the more claimed the greater the chance of AMT.
  • Deducting State and Local Taxes
  • Interest on 2nd Mortgage
  • Itemized Medical Expenses
  • Misc. Itemized Deductions (2% rule)
  • Some Tax "credits"
  • Incentive Stock Options (ISO's)
  • Long Term Capital Gains
  • Some Tax-exempt interest bonds (muni's)

AMT Exemptions:

  • 2006 personal exemption for Married and Filing Jointly was $62,550
  • 2007 exemption is $45,000 unless Congress passes the AMT relief legislation.
  • This means that for every $1 over $150,000 in income your AMT exemption is lowered by $.25
  • If you have a high salary or large capital gains you could get hit. Over $328,000 and you have exhausted your AMT Exemption completely.

What should you do?:

The AMT is a tough tax to estimate. If you think you are in jeopardy of hitting the AMT talk with your tax professional about the AMT preference items above.

Above you will also find a link to the AMT estimator tool on the IRS website.

James A. Daniel,

This newsletter if for informational purposes only. The information contained within should not be considered as financial advice nor soliciation for financial services. Consult with your financial professional if you have any questions.

The Advisory Firm, LLC is a fee-only financial planning company and registered investment advisor.

© 2007 The Advisory Firm, LLC. All Rights Reserved.
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