Alternative Minimum Tax Returns
The alternative minimum tax (AMT) is coming back with a vengeance in 2012. In 2011, a couple filing jointly didn’t have to worry about the alternative minimum tax until they hit an adjusted gross income of over $74,000
In 2012, the alternative minimum tax is scheduled to kick in for the couple at only $45,000. That means the average American middle class family will be caught squarely by a law that was intended to only affect the rich.
I’m not rich when my income is only $45,000, are you? The AMT will tax amounts over the $45,000 mark at a minimum of 26%. Thus, the “minimum tax” in “alternative minimum tax.”
To top it off, calculations made in determining the AMT cut certain deductions, exemptions, and credits you may think you are entitled to. You can cut your taxes using a number of advanced tax tips.
The key is to reduce your adjusted gross income. You can’t do much about your adjusted gross income, but your little company can. Your little company (corporation or LLC) is your biggest ally in the fight against the IRS.
If you don’t have a company, you need to think about establishing one. You don’t need to do “business” in the way you might think. Family projects can be businesses. Of course, you need to make money two out of five years in order to convince the IRS you have a real business.
If you’re not making money after three years, just file a final tax return, and be done with it. Actually, there are lots of companies that haven’t shown a profit in the past three years in this bad economy, so don’t sweat it.
Of course, if you can make money, that’s great. However, all of the “expenses” or even the losses in the company will go directly against your income, if it is set up properly. Things like computers, desks, cell phones, travel, money paid to kids, benefit expenses, and anything else you expend in your company can be expensed.
If you can reduce your adjusted gross income, it will cut your alternative minimum tax calculations. I’ll bet your CPA has never held a little heart to heart talk with you about lowering your adjusted gross income and saving alternative minimum taxes. But, it’s something you need to be really worried about, because it is going to cut your spendable income, and you don’t have to be rich to be hit.
In 2013, a couple making $45,000 can expect to pay in the neighborhood of $3,000 more in income taxes than they did in 2011. That’s the law today, if congress doesn’t do anything. (Congress is good at doing nothing, so I think we’re stuck.) Use all the tax tips you can get and cut your taxes any way you legally can.