IRS “Summertime Tax Tips” and the Alternative Minimum Tax

In Information Release 2009-64, issued last week, the Internal Revenue Service announced that is publishing a series of periodic “summertime tax tips.”  The stated purpose behind issuing these tips is to provide useful and concise advice on topics that affect taxpayers.

“Many people don’t think about their taxes until the start of the filing season in January. That can be a mistake. Steps such as checking your withholding, getting the proper receipts from charities, organizing all the records you will need or setting a personal tax strategy that can save money at tax time are most effective if they are done well before year’s end.”

The IRS is plans to publish several tax tips each week throughout the summer. The topics of these tips “will range from how parents can get credit for sending their kids to day camp to protecting yourself from identity theft.”

One of the things the IRS neglected to note in its announcement, however, is that almost every tax tip has potential Alternative Minimum Tax planning ramifications.  Because the AMT is built on, but modifies, the regular tax, AMT considerations also play an important part in any tax planning strategy.

The  Alternative Minimum Tax has been around for 40 years, but it is only recently that it has really starting taking a bite out of taxpayer’s wallets.  Why is this happening?  It’s simply another example of the law of unintended consequences.  When the first minimum tax was enacted back in 1969, it seemed like a good idea – 155 taxpayers making over $200,000 were paying no taxes at all under the regular income tax, so a “minimum” tax would make sure that they did. But today that 155 has exploded to over 4 million who are paying the AMT.

Here is a list of items that can cause you to fall into the AMT.  To the extent you have any of these you need to keep the AMT in mind when doing any planning for your taxes.

• Medical and dental
• Taxes from Schedule A, including state and local income taxes or general sales taxes, real estate taxes and personal property taxes.
• Home mortgage interest adjustment
• Miscellaneous deductions 2-percent floor
• State and local tax refunds
• Investment interest expense
• Depletion
• Net operating loss deduction (Regular tax NOLs)
• Interest from specified private activity bonds exempt from the regular tax
• Qualified small business stock, capital gains exclusion (section 1202)
• Incentive stock options exercised
• Estates and trusts
• Electing large partnerships
• Disposition of property
• Post-1986 depreciation
• Passive activities
• Loss limitations
• Circulation costs
• Long-term contracts
• Mining costs
• Research and experimental costs
• Income from certain installment sales
• Intangible drilling costs preference
• Other adjustments, including income-based related adjustments
• Alternative tax net operating loss deductions (AMT NOLs)