A Do - It - Yourself Guide: How To Save On Taxes When You Pay Alternative Minimum Tax (AMT)

WARNING: If you are not a tax professional, we strongly suggest that you consult a tax professional about using this tax planning strategy.

Before we begin, here is some "terminology":

  • "This year" or "the current year": If today is 6/30/2007, "the current year" or "this year" is 2007.
  • "The next year": If today is 6/30/2007, "the next year" is 2008.
  • "The year before" or "last year": If today is 6/30/2007, "the year before" is 2006.

Lets first make sure that this strategy might  work for you.  You need 2 things to make this work.  One, this year you will have to pay Alternative Minimum Tax.  Second, in the next year, you will pay "regular" tax, but no AMT.  This sometimes works if you pay less AMT next year than you will this year.  Basically, this works most frequently for someone who will pay AMT this year, and will have much less income next year.  This strategy can work also for someone who will pay AMT this year and next year's tax rate will exceed 28%.

Before we continue, lets ask a question that you should be immediately raising.  "If your company sells software to do this, why are you telling us about an absolutely free alternative?"  Simple - Once you understand how time consuming it is to make these computations without using the AMT Planner you will want to buy our software.

  BY YOURSELF AMT Planner
Investment No money, but lots of your time. NO LONGER AVAILABLE
Gather Information Make sure you have the information to do tax projections for this year and next year.

It is important to know how much you can reduce this year's state income tax withholding or estimated tax payments without getting hit with a penalty.  Usually, you want to make sure that this year's state withholding plus state estimated taxes are as high as your state income tax was the year before.  (Under some situations you might want your state payments for this year to be 110% of last year's state income tax.)  For this reason, this strategy often does not work if last year's income was higher than this year's income.

Our program uses the same information, but the input screens make it easier to gather the information.
Process
  1. Make a tax projection for this year to see what your taxes will be without any tax planning.
  2. Make a tax projection for next year to see what your taxes will be without any tax planning.
  3. Combine the tax for this year and next year.
  4. Make a tax projection for this year reducing your deduction for state income taxes as much as you can without being penalized.
  5. Make a tax projection for next year increasing your deduction for state income taxes as much as your reduced them for this year.
  6. Combine the tax for this year and next year.
  7. Continue to make tax projections for both years.  Make sure that you change the state income tax deduction between the amounts that you used in steps 1 and 4.  This is a trial and error situation.  Keep making tax projections for both years until you have minimized the combined taxes for this year and next year.

 

Order, install and run the AMT Planner.  Each time you run our program, it will make 1,000 tax projections for you to minimize taxes over 2 years.  It will take only seconds to run all 1,000 tax projections.
Elapsed time Hours to get some tax savings.  Days to actually minimize your tax over 2 years. A few minutes to minimize your tax over 2 years.

If you would like us or an accountant near you who uses our program to make these tax computations for you, please contact us at 1-800-326-6686.

Get more information about the Alternative Minimum Tax Planner.

|Products|Home|Order|
|Free Software|Support|

 

Denver Tax Software, Inc.
PO Box 632285, Littleton, CO 80163-2285
Voice: 1-800-326-6686     Fax: 1-888-326-6686

Copyrightę 1997-2017, Denver Tax Software, Inc.