I am on the threshold of being hit with AMT. Would increasing my state tax withhold help ?

Question

Since my state income tax is deductible, I am hoping that by increasing my state tax withholding in 2006, my income will be pushed back to the non-AMT level.

Thank you in advance for any advice!

Answer 1

That doesn't really change the net income that is taxable, as your withholdings are not your actual TAX. It is the state taxes that make a difference.

Some other ideas - open a traditional IRA (a Roth won't do it). There's no income limit on a traditional IRA and if you are married you can fund one for your spouse, even if they are not earning income (ie a stay at home mom). For 2006 and 2007, you can fund up to $4000 a piece (in separate accounts, one for each of you) if you are 49 or younger, and up to $5000 each if you are 50 or older.

That directly reduces your taxable income. Hopefully you're maxing your contribution to your employer's 401K, which is another great way to reduce your taxable income, while still retaining that money for your own use. If you have a FSA or MSA, (Flexible Spending Account or Medical Spending Account) at work, you might also review your withholdings for next year to prevent this problem next year.

You can also donate appreciated stock or bonds to charity and deduct the full market value (even though you paid less for the stock), while avoiding the capital gains on that stock.

I would play with tax prep software. It is also possible that the AMT isn't going to make a big difference in your taxes due. Knowing what that potential cost is, will help you make a better decision as to what you should do about it.

Answer 2

No, state income and real estate taxes and miscelleanous deductions are not deductible for AMT TAX. By increasing your state withholding you will ensure that you will be in AMT.

Answer 3

Actually that could make it worse, since if you itemize, your state withholding is deductible in the year paid and making it more could increase your vulnerability to the AMT, but your AGI doesn't change.

If you have turbotax from last year or something like that, put it in both ways and see what effect changing your withholding makes.

Answer 4

This wont help much. For every three dollars you itemize, you get about one dollar less in taxable income. It would be better to put money in a Roth or conventional IRA. T Rowe Price are good people to talk to. Tax sheltered annuities are a good thing to get into rather than increasing withholding.

Answer 5

actuality is she/he did no longer say Washington D.C. replaced right into a state she asked in what state this is in. meaning the place is it placed. and that i do no longer % to sound mean or impolite yet we did no longer asked the guy with the "ultimate answer" how life replaced into there we asked in what state it relatively is placed in. P.S. i know i myself won't get many votes or something yet people circulate of music and commenced to communicate approximately how Washington DC wasn't a state and how it replaced right into a federal district. we ought to renowned WHICH STATE this is IN