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The 12 Tax Tips of Christmas:
#6 Watch out for AMT issues

December 18, 2009

If you have to pay the alternative minimum tax, or AMT, you'll be singing the blues instead of the joyous tunes of the holiday season. In today's sixth verse of The 12 Tax Tips of Christmas, we look at just what this dreaded and costly parallel tax is and how you can find out if you might face it.

6 geese a-laying The AMT is a separately figured tax that eliminates many deductions and credits that filers can claim when computing their regular tax bills. By losing these breaks, they see their tax bill go up under the AMT.

So who has to pay the AMT? The original idea behind this separate tax was to prevent people with very high incomes from using special tax benefits to reduce or eliminate their tax liabilities. Over the years, however, inflation has made income levels once considered wealthy simply a decent middle-class wage.

The problem is that the AMT isn't indexed for inflation. So the law has to be continually tweaked (since Congress won't just kill the damn tax, but that's a rant for another blog post) to keep millions of regular taxpayers out of the AMT's clutches.

The latest legislative moves came via the American Recovery and Reinvestment Act, aka ARRA or the stimulus bill, enacted in February. It included a one-year AMT patch.

The mock tax return your did (or will do) will help you find out whether you escape the AMT this year. Here's a bit more info so that you can clarify your situation.

The stimulus expanded the income exemption levels. You subtract the amount for your filing status when you calculate taxable AMT income.The larger exemptions mean there's less chance of being hit with the AMT.

The 2009 tax year exemptions are:

  • $70,950 for married joint-filing couples (up from $69,950 for 2008);
  • $46,700 for unmarried individuals (up from $46,200); and
  • $35,475 for married individuals who file separately (up from $34,975).

In addition, the ARRA also allows filers to use any and all nonrefundable personal tax credits to reduce a possible AMT bill. This is the same benefit allowed folks facing simply a regular tax bill.

Among the most popular nonrefundable credits are the $1,000 child tax credit and the American Opportunity Education Credit (otherwise known as the modified Hope Credit). Other AMT allowable credits include the credit for the elderly or the disabled and the mortgage interest credit.

You also might want to bookmark the IRS' AMT Assistant Web page.This online tool, which will be updated for the 2009 tax year in a month or so, is designed to help taxpayers who don't use (or haven't yet purchased) tax software determine whether they might be subject to the alternative minimum tax.

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TAX-SAVVY WAYS 
TO WRAP UP 2026

It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

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