In 2008 I will have significant interest and dividends, negative capital gains, very small W2, but substantial deductions for medical and investment management fees. I will be well into AMT.
Is there any way to take advantage of that? The only thing I could think of was to sell everything I own that is up and take profits, but that doesn't work. My taxes go up, and my AMT doesn't change. I suppose getting more W2 might work, but I haven't the ability to do that.
Any ideas, or is it hopeless?
"jack" wrote
AMT is a "floor tax" in that regardless of how many deductions you take, your tax will never be less than the floor. It's the government's way of saying out of one side of their mouth "Take all the deductions you're entitled to" and saying "But you have to pay a minimum tax of...." out of the other side of their mouth.
If you feel that not paying AMT is your goal, consider not claiming your deductions to increase the regular tax till it equals or exceeds the floor (AMT) tax.
What you should be doing though, is seeing if any of your remaining deductions can be physically moved to next year - by actually paying them next year - to not totally lose the deduction to AMT.
Only part of medical deductions are subject to AMT. The instructions says to enter the smaller of your actual medical itemized deduction (that is, the deduction after the 7.5% floor has been subtracted out), or 2.5% of your AGI. Let's assume that your medical deductions are
15% of your AGI. Then only 7.5% is deductible on Schedule A, and 2.5% is subject to AMT, which leaves you with 5% effective deduction. Publication 502 says you can deduct medical expenses paid this year, regardless of when those services were provided (page 2). So I'm wondering if you have the same medical expenses next year, maybe you can prepay them this year and take the deduction for them this year.You can make a big charitable contribution too. They don't get added back to AMT. But there are limits on charitable deductions. You can only deduct 50% of your AGI, and the amount you were not able to deduct carries over to next year, for a maximum of 5 years. But the story on limits is more confusing: there are 50% and 30% organizations, and donations of stock is limited to 30% and 20% respectively. See
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