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How the Alternative Minimum Tax Impacts Retirees
Generally no one is more surprised than a retiree to find that they are paying the Alternative Minimum Tax (AMT). Income earned on investments is a key factor in determining the amount of Alternative Minimum Tax you pay. Retirees are actually in a good position to do something about the AMT. All it takes is some sound advice and proper planning.
Two things strongly factor into the formula for the Alternative Minimum Tax. One is the type of investments you have. Some investments figure more consequentially in the Alternative Minimum Tax. Therefore, the structure of your portfolio is very important in determining how much or how little the AMT will affect you. The second factor is, of course, the amount of your investment.
Investors earn income on dividends, interest, capital gains, partnership or real estate investments. This income is variable depending on the amount of cash, bonds, stock, and other investments in one’s portfolio. Controlling the timing of investment income and the ability to change the investment type are crucial.
While it is true that you cannot change the timing of interest income, an investor could, conceivably, change the amount of dividend income earned by changing the strategy of investing.
State income taxes are the biggest single reason taxpayers find themselves straddled with the AMT. Ninety percent of all the people who pay the Alternative Minimum Tax are caught in this tangle. A high percentage of retirees make estimated tax payments every quarter in order to meet their state tax obligations.
If you are a retiree facing the AMT because of the type and/or amount of your investments, you might do well to contact a tax specialist or your financial planner. Together, you can discuss strategies involving your investment portfolio that might be helpful to you in regard to the Alternative Minimum Tax.
About the Author
Chintamani Abhyankar, is a well known expert in the field of finance and taxation for last 25 years. He has written many books explaining inside secrets of the magic world of personal finance. His famous eBook Stop donating your money to IRS which is now running in its second edition, provides intricate knowledge and valuable tips on personal finance and income tax.
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