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The first question anyone asks who has faced an AMT bill is “How can I reduce it?”. The easiest way is to reduce your AGI. This can be done by increasing or maxing out your 401(k) contributions for the year (or 403(b), 457(b), or SIMPLE IRA contributions). Also, if your employer offers a cafeteria plan, you can reduce your AGI by paying for medical, dental, life, and disability insurance, as well as dependent care expenses.
Other AMT minimization strategies are mostly for self-employed people and business owners. If you have self-employment income, be sure to claim business expenses directly against that income on your Schedule C instead of as miscellaneous itemized deductions on Schedule A. This way, you won’t lose any of the deductions when you compute your tax bill under AMT rules. If you do have self-employment income, consider claiming a home office deduction (but be sure you have thorough documentation to support this deduction, since it is a common audit flag for the IRS).
Since itemized deductions are mostly eliminated under AMT rules, try to time real estate, state income, and other tax payments during years when your income won’t put you into AMT territory.
One last strategy to reduce the AMT is through charitable contributions. Charitable contributions are still deductible under the AMT, but you will probably end up paying more total dollars out of pocket; a portion of the money will just go to a charitable cause rather than to Uncle Sam.
The AMT is very complex, so please be sure to consult a tax professional if you do end up owing the AMT!