Common Alternative Minimum Tax (AMT) Triggers

To comply with Internal Revenue Service Circular 230, we inform you that any tax advice contained on this website is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.
 
If you found yourself paying the AMT the last couple of years or think you might have to pay it this year, it can be useful to understand what some common AMT triggers are.  The AMT (Alternative Minimum Tax) is a parallel tax system that replaces the regular tax code that applies to your return if you exceed certain limits.  Often the AMT kicks in if you have a lot of itemized deductions or certain types of income that are tax-free under the regular tax system.
Some common AMT triggers are:
-high amount of state and local taxes
-high number of personal exemptions
-medical expenses
-unreimbursed employee expenses (miscellaneous expenses)
-exercise of ISOs (incentive stock options)
-interest on home equity debt used for purposes other than buying, building, or improving your home
-accelerated depreciation
-long-term capital gains
-tax-exempt interest from private activity bonds
-passive income or losses
-net operating loss deduction
There are many other possible AMT triggers, but identifying one or more of these common expenses or types of income as the culprit behind your AMT bill is the first step in making important tax planning decisions.  Once you understand the drivers behind your tax liability you can improve both your short- and long-term investment and tax strategies.

Leave a Reply

Your email address will not be published. Required fields are marked *