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Author: HokeySon One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121327  
Subject: Alternative minimum tax Date: 6/3/2004 4:15 PM
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Hello,
I think I have a basic understanding of the alternative minimum tax and the reasons for its existence. However, for the life of me I cannot figure out why I should be subject to the tax (like turbo tax says I am). I do not have any of the income or deductions that the tax is supposed to go after. Except that I have a second mortgage -- but I used all of that to improve my home. The rest is straight forward, I have a high income, but it is all earned from a regular job. Anyone tell me what is up here? Please?
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Author: pmarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 72083 of 121327
Subject: Re: Alternative minimum tax Date: 6/3/2004 4:29 PM
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I think I have a basic understanding of the alternative minimum tax and the reasons for its existence. However, for the life of me I cannot figure out why I should be subject to the tax (like turbo tax says I am). I do not have any of the income or deductions that the tax is supposed to go after. Except that I have a second mortgage -- but I used all of that to improve my home. The rest is straight forward, I have a high income, but it is all earned from a regular job. Anyone tell me what is up here?

Without seeing the return, I have to use my crystal ball, which says it's either input error or you pay lots of state & local taxes.

Take a look at the Form 6251. Make sure that line 4 is blank. That takes care of the only possible input error I can think of.

For people who live in high-tax areas, the loss of the taxes and personal exemption(s) can trigger AMT without any traditional "preference" items.

Phil

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Author: babyfrog Big red star, 1000 posts Old School Fool Home Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 72084 of 121327
Subject: Re: Alternative minimum tax Date: 6/3/2004 4:43 PM
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Hi HokeySon,

State income taxes are not deductible under AMT. Some municipal bonds are subject to taxation under AMT. Capital Gains can potentially trigger AMT under the wrong circumstances. Stock options can trigger the AMT. There are a lot of 'ordinary person' things that can trigger AMT liability.

Here is a really good guide to the AMT: http://www.fairmark.com/amt/ . And here is the top ten or eleven causes of AMT: http://www.fairmark.com/amt/topten.htm .

The AMT is a creature of Congress... Congress apparently thinks your rich, in spite of the second mortgage. So you're subject to the AMT.

-Chuck

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Author: babyfrog Big red star, 1000 posts Old School Fool Home Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 72085 of 121327
Subject: Re: Alternative minimum tax Date: 6/3/2004 4:44 PM
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deng it...
Congress apparently thinks your rich,
Should be
Congress apparently thinks you're rich,

Sorry.
-Chuck

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Author: HokeySon One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 72086 of 121327
Subject: Re: Alternative minimum tax Date: 6/3/2004 4:51 PM
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yeah, its blank and state and locals look pretty high (about 10% of AGI). How the heck do you plan around this?

Hmm, can this "problem" be created by overwithholding -- I am getting a 1800 state refund -- since the withholding amount is what is used on line 5 of Sch A (right?), would I have avoiding the AMT by withholding less? Does it really matter (apart from being more confused). Put differently, Does the AMT have effects on other items or just recapture the tax owed on the amount excluded from income because it was withheld by the state?

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Author: HokeySon One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 72087 of 121327
Subject: Re: Alternative minimum tax Date: 6/3/2004 4:52 PM
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Thanks chuck I will take a look at that stuff.

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Author: pmarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 72088 of 121327
Subject: Re: Alternative minimum tax Date: 6/3/2004 5:26 PM
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can this "problem" be created by overwithholding -- I am getting a 1800 state refund -- since the withholding amount is what is used on line 5 of Sch A (right?), would I have avoiding the AMT by withholding less?

Probably not. If you look further down the 6251 you'll see that your state refund isn't AMT taxable. Thus, this all balances out.

That said, I'd have less withheld because of the refund's effect on AGI, which can affect a lot of other things.

Phil

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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 72089 of 121327
Subject: Re: Alternative minimum tax Date: 6/3/2004 6:17 PM
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can this "problem" be created by overwithholding -- I am getting a 1800 state refund -- since the withholding amount is what is used on line 5 of Sch A (right?), would I have avoiding the AMT by withholding less?

Probably not. If you look further down the 6251 you'll see that your state refund isn't AMT taxable. Thus, this all balances out.

That said, I'd have less withheld because of the refund's effect on AGI, which can affect a lot of other things.


Agreed, and HokeySun will have another problem to deal with next year. He will have to calculate the taxable amount of his state income tax refund taking into account any reduction in deduction due to AMT. Another reason to more accurately project withholdings.

Ira

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