1. Medical Expenses
a. For those over 65 and are still working, consider enrolling in your employer’s pre-tax medical deduction plan to reduce your salary to effectively shift your medical.
2. Taxes
a. In an AMT year, do not prepay real estate taxes or fourth-quarter state estimated tax installments.
b. Determine if any real estate taxes can be deducted elsewhere on your return since only those that are classified as itemized deductions are disallowed for AMT purposes.
i. If you have a side business, see if you qualify for a home office deduction which would move some of your real estate taxes to Schedule C and also lower your adjusted gross income (AGI) subject to the AMT calculation.
ii. Renting part of your home would allow you to deduct a portion estate taxes on Schedule E, again lowering AGI.
3. Home Equity Interest
a. For regular income tax purposes, interest on home equity loans up to $100K is deductible regardless of the use of the loan proceeds.
i. For AMT, interest on the non-home improvement portion is added back to income.
1. If considering a car purchase, a lower rate auto loan may be preferable. If some of the auto use is for business, a pro rate portion of the interest may be a schedule C write off.
4. Miscellaneous Deductions
a. Employee business expenses account for the majority of these expenses.
b. Ask your employer to reimburse you for these expenditures under an accountable plan that requires you remit your receipts and to refund any advance not used.
i. The advances/reimbursements are not taxable and the expenses are not deductible, thus the AMT rules do not apply.
c. If your employer does not have an accountable plan and refuses to establish one, ask that they reimburse you for these expenses in exchange for a lower salary. Your employer will save payroll taxes and insurance and there will be no AMT issue for you.
5. Private Activity and Tax-Exempt Bond Interest
a. The return on exempt bond interest is typically lower to account for its exempt nature for regular tax purposes, but does not consider AMT.
b. Consider investing in tax-exempt bonds issued before 2009 that are not private activity bonds.
6. Incentive Stock Options
a. If you exercise an ISO, but do not sell the stock in the same year, the bargain element (difference between the fair market value on the date of exercise and the exercise price) is not subject to regular tax , but is taxable for AMT.
b. Consider selling the stock in the year of exercise if AMT is inevitable for that year to pay the AMT tax.
c. Another option that might minimize your overall tax would be to exercise the options in one year, incur the AMT and sell the shares in a later year at long term rates that will be reduced by a credit for the AMT paid earlier.
d. It may be advantageous to spread the exercise of the options over several years to allocate the income to more than one tax year, possibly to avoid AMT or to reduce the phase out of the AMT exemption.
7. Capital Gains
a. While capital gains qualify for the same lower rates under both regular tax and AMT, they may cause you to lose part or all of your AMT exemption.
b. To avoid this, you might spread the sale over several years (same as with ISO’s).
For more information on AMT or another area of accounting, please contact Victor C. Belgiorno at 516-861-3704 or or Bob Jahelka at 516-861-3707 or .