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Seven Top Strategies to Minimize the Bites of AMT
In spite of repeated and strong resistance, Congress has not eliminated AMT. It has in fact reduced the limits of exemption for applying AMT to individuals for the current year. So about 23 million taxpayers are likely to come under the clutches of AMT for 2008 returns. By the year 2010 about 35 million taxpayers will fall victim to this tax. The best method to understand AMT is to consider it as a separate tax system. AMT is an alternative method of computation of the tax liability which disallows some of your deductions and personal exemptions. You are subject to a flat tax rate of 26 per cent or 28 per cent after allowing AMT specific exemption. You have to use form 6251 for the computation of AMT. You are likely to be getting in the clutches of AMT if you have extraordinary medical expenses, you have big miscellaneous deductions, or if you live in the states where there is no state income tax. AMT affects you if your family is large, as you will lose many personal exemptions in the calculation of AMT. Most of the above reasons of getting hit by AMT are common. So lets think of strategies to reduce your taxes under the circumstances. If you are likely to be hit by AMT, then your usual tax planning concepts get reversed. So now you are looking out for differing deductions instead of claiming deductions! Non- AMT deductions are of no use because your income is going to be charged at a rate of 26 per cent or 28 per cent flat. Also, instead of reducing your income, you better think of accelerating your income! Consider following seven top strategies to successfully combat with AMT - 1. You can take prepayment of your salary. The income will be added in this year, but as you are paying taxes at a flat rate, doesn't matter. Your salary for the next year will be lower, and then you can save taxes on that. 2. You can book short term gains on the securities from your portfolio. Again, this will increase your income for the present year, but it is ultimately beneficial as for the next year you will have less tax liability. 3. You can think of withdrawing funds from your investments which are tax deferred. This is a very useful strategy if you anticipate increase in the tax brackets in the coming year. 4. You can defer payment of income tax on your estate. You can pay that in the next year. 5. If your medical expenses for the current year are likely to exceed 10 per cent of your AGI, then you should defer them until the next year. 6. You can spread the incentive stock options to minimize concentration of preference items in one year. 7. Business expenses relating to employees, job education expenses, tax preparation expenses and similar other expenses can be deferred until the next year. The secret of a successful AMT strategy is short term planning where you defer certain expenses until the next year and pull in items of income from the next year. The logic is -as you are not going to benefit from excessive deductions, it is better to claim them in the next year. Similarly, it is better to include some of your incomes of the next year, in this year because at least next year you will be out of the clutches of AMT and can reduce your taxes. Chintamani Abhyankar is internet marketer, tax professional and freelance writer. He has done a lot of research on tax systems and is advising people internationally on various aspects of tax planning over last 25 years. His masterpiece, Stop donating your money to IRS is an e-book on the tax secrets which only lucky people knew in the past. His easy to implement strategies can put thousands of dollars in your pocket. Grab a copy now! Article Source:
http://EzineArticles.com/?expert=Chintamani_Abhyankar
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