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This will be an ugly year for taxes - our consulting business did well, and we are selling rental property and land held for investment. I´ve done my best to estimate our tax burden (yes, I´ll check all this with our tax advisor) but I´m worried about the AMT. One way I could increase our meager deductions is by prepaying state taxes but the AMT rules might disallow that.

Here are my questions:
1. Which tax software will handle these issues best? I´d like to play around with what-ifs before prepaying state taxes.
2. If I do prepay state taxes, and the deduction is disallowed, will I be able to roll the deduction forward to next year when our income will be very low?

Thanks in advance, I know there are some very knowledgeable people on this board.
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This will be an ugly year for taxes - our consulting business did well, and we are selling rental property and land held for investment. I´ve done my best to estimate our tax burden (yes, I´ll check all this with our tax advisor) but I´m worried about the AMT. One way I could increase our meager deductions is by prepaying state taxes but the AMT rules might disallow that.

Unless you are talking about a capital gain that's quite large in relation to your other income, I don't see anything that would be an AMT trigger in the information you've given. Except, of course, for the state taxes.

In my experience, you'd have to pay a lot of state taxes to trigger AMT just with that alone. Most often it comes in the year after a big spike in income because the state taxes were NOT prepaid. That kicks the state taxes way up in relation to the following year's income and triggers the AMT.

My best guess is that you'll want to prepay enough of the state taxes to get to the point where AMT kicks in. That's because any state taxes that provide no benefit because of the AMT cannot be carried forward to the next year.

It's a little difficult to do (unless your crystal ball is better than mine), but I'd suggest looking at a TWO year tax projection. Make your best guess for next year's income and then look at your taxes over the two years depending on when you pay the state taxes. Juggle the state taxes paid this year and next year to see where you get the best result.

--Peter
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Here are my questions:
1. Which tax software will handle these issues best? I´d like to play around with what-ifs before
prepaying state taxes.


The free demonstrator spreadsheet downloadable at http://www.edcosoft.com/qitc.html will compute your year 2001 taxes (fill in your tax status and use Column I ) and display all the Form 6251 (AMT) lines as you change your input values for income and Schedule A deductions. You'll need Excel97 to run it. Have fun. ed
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Thanks edcosoft and ptheland for your replies. I have a very complex (by now) spreadsheet to estimate my taxes and have done 2001 and 2002. I came up with the result peter predicted - the cap gains didn't trigger the AMT; the big downside is that AGI is high enough to not get passive losses on the rental house and to lose some of the deductions. But I was worried that I missed something and want to make QUITE certain I'm close before taking any further action.
Thanks, Edcosoft, for the link. I certainly will use the demo software. I understand your software is the best for wash sales, which most tax software doesn't even tackle!

Kathy
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