It's Fall: 10 Weeks Of Alternative Minimum Tax Planning Ideas...week 3 "miscellaneous" Itemized Dedu

It may seem odd that a category of expenses labeled "job expenses and certain miscellaneous

deductions" could affect nearly a third of all taxpayers caught in the AMT, but that just happens to be the case. This category includes, in addition to job-related expenses that are not reimbursed by your employer, such other things as tax return preparation fees, investment-related expenses like fees paid to an investment advisor, trust fees, safe-deposit box fees, and any other expenses that are incurred in connection with earning the income that is shown on the tax return.

When calculating the Regular Tax, these types of expenses are deductible, but only if they exceed a certain percentage limitation. The limitation is 2 percent of the taxpayer's Adjusted Gross Income, or "AGI." For example, if AGI is $100,000, the taxpayer is allowed a deduction if the total of job-related and miscellaneous expenses exceeds $2,000 - but then only for the amount in excess of the $2,000.

For taxpayers stuck in the Alternative Minimum Tax, however, no deduction is allowed for miscellaneous itemized deductions. This difference between the Regular Tax and the AMT is reported on IRS Form 6251 as one of the numerous adjustments that must be made in calculating taxable income.

A couple of key planning tips here:

First, as with all itemized deductions, miscellaneous expenses are eligible to be deducted only in the year paid, whether by cash or by writing out and mailing, or actually delivering, a check. If a credit card is used, the date the charge is put on the card is the important date, even though the credit card bill is not paid until later when the bill comes in.

Second, as we've been preaching all along with other items such as state and local taxes, the key AMT tax planning step is determining whether the taxpayer has enough control over paying the expense so that he could choose to make it a deduction either in the current year or in the next year.

For example, if a taxpayer filed his 2008 return on the final extended due date of October 15, 2009, he probably wouldn't be receiving the bill from his CPA until about now, in November. In this case, if the taxpayer is in the AMT in 2009 but will not be in the AMT in 2010, it makes more sense to pay the bill in January, 2010. So long as the 2 percent threshold is exceeded in 2010, there will be a Federal income tax benefit that otherwise would not be available if the bill were paid in 2009. Depending on the individual's tax bracket, this savings could be up to 35 percent of the amount of this deductible expense.

There is nothing secret about this tax reduction opportunity - just the same basic and easily executed tax planning strategies as discussed in our earlier articles. Estimating your tax situation this year and next - to see if you are in or out of the AMT - and then just paying the bill in the more advantageous year is all there is to it.

by: George Bauernfeind

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