Personal Business and Finance

The Alternative Minimum Tax (AMT) is a parallel, yet separate, alternative to what we might call the “regular” tax.  The AMT has its strongest effect upon the middle class taxpayers.  The Alternative Minimum Tax broadens the amount of taxable income by including things that would not be taxable under the regular tax.  The AMT also prohibits many tax deductions.

There are things that can be done to soften the impact of the Alternative Minimum Tax.

Try and adjust the timing of certain income factors such as implementing stock options and selling stock.

Seriously consider your state and local tax load.  State taxes play a large role in determining Alternative Minimum Tax because under the AMT, state taxes are not deductible.  Some states like New York, Massachusetts, and California have particularly high taxes.  Other states, like Texas, Nevada, and Florida have lower taxes.  Living in a state with lower taxes will help you to more easily avoid the AMT.

Capital gains can seriously impact your AMT exemption.  Always consider the implications of the Alternative Minimum Tax before you decide to realize any capital gains.

Some employee business expenses can affect the Alternative Minimum Tax.  Before accepting any employer reimbursements, figure out how it will affect you in regard to the ATM.  Perhaps you and your employer might work out an alternative.

Investors earn income on dividends, interest, capital gains, partnership or real estate investments.  This income is variable depending on the amount of cash, bonds, stock, and other investments in your portfolio.  Controlling the timing of investment income and the ability to change the investment type are crucial.  Structuring the timing of investment income will greatly aid you in dealing with the AMT.

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