Article provided by: Employee Stock Option Fund
Learning More About The Best Ways To Avoid AMT
AMT (also known as alternative minimum tax) was originally put into place as a means of keeping the bigger corporations in the country from being able to steer clear of paying their necessary taxes. However, inflation has become more of a factor in these matters than expected and there are now a wide range of people from lesser tax brackets being forced to pay AMT.
So how do those of us who are not corporate fat cats successfully avoid AMT? While there are always the obvious answers when it comes to these matters, those who wish to avoid AMT should definitely read on to learn more about the best ways to steer clear of these unwanted taxes.
4 Tips To Help You Avoid AMT
1. Proper Investment Planning
Did you know that your 401K actually plays a major role in your ability to avoid AMT? For example, the contributions that you make when it comes to this account significantly reduce the amount of your income that is able to be taxed. In order to avoid the aforementioned taxes and the cumbersome expenses that are typically associated with them, it is in your best interests to make the full amount of allowable contributions and reduce your level of taxable income.
2. Avoid Non Tax Exempt Investment Income Sources
Private activity bonds are a particularly common investment income source that cause would be investors to later regret their decision making when they find themselves susceptible to alternative minimum tax. These bonds are usually issued during instances when funding is needed for private projects, such as the construction of new infrastructure.
3. Learn More About Your Stock Options
Let's say that your employer has decided to provide you with incentive stock options. In order to exercise these options and still avoid AMT, you are going to need to think carefully and plan ahead as much as possible. Since these options tend to be offered to employees under a heavily discounted price, the taxation only takes place when they are sold off. Those who are subject to the AMT need to bear in mind that the difference between the price they paid and the stock's true value will be added to their eventual tax bill.
4. Proper Usage of Home Mortgage Interest
Under AMT rules, deductions that involve home mortgage interest can only be used when the funds are being utilized to purchase, build or improve upon an existing home. Those who are subject to these taxes are advised not to take on any sort of home equity mortgage if they are trying to steer clear of any AMT related penalties. These funds must be utilized in a manner that is directly tied to the home.
While some of these tips may have seemed obvious to some of our readers, there are many who do not find themselves in possession of this knowledge until it is far too late. These taxes are not designed to punish the average working class citizen and by utilizing the aforementioned tips, they no longer have to.
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