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As you know, the alternative minimum tax (AMT) is
trapping more middle income taxpayers every year. If
government forecasts are correct, 31 million taxpayers
will be paying AMT by 2010, many of them middle income
taxpayers. With exemption amounts not indexed for
inflation, and numerous credits not allowable for
minimum tax purposes, with a tax rate of at least 26
percent imposed on AMT items, AMT exposure could be
substantial. To partially alleviate these risks,
Congress has enacted annual "patches" to the AMT to
increase exemption amounts and provide other relief.
The Emergency Economic Stabilization Act
of 2008 (2008 Stabilization Act) provides taxpayers with
such relief for 2008 by (1) increasing the exemption
amounts (to $69,950 for married couples filing jointly
and surviving spouses, $46,200 for single taxpayers and
heads of households, and $34,975 for married couples
filing separately); (2) allowing nonrefundable personal credits to be used
to reduce AMT liability and removing limits in the AMT
on taking personal credits against regular tax
liability; (3) permitting taxpayers to accelerate
refunds of their unused minimum tax credit by allowing
recovery in two years and by removing the income phaseout of the minimum tax credit; and (4)
abating AMT, interest and penalty liability from the
exercise of incentive stock options (ISOs) before 2008.
Most of these changes are effective only for the 2008
tax year.
In general, the best way to handle AMT
liability is careful planning involving the coordination
of future regular income tax and AMT, using accurate
projections of income, expenses, and deductions over
multiple years with several alternative scenarios. An
overall plan must then be devised to manage your AMT
liability without raising regular tax liability.
Please contact our office if you would like to discuss
how this will affect you. |
