As she has each year for the past decade, IRS National Taxpayer Advocate Nina Olson calls once again in her annual report to Congress for repeal of the Alternative Minimum Tax.  Using labels such as “difficult,” “complicated,” “burdensome,” and a “penalty” to describe the AMT, she also notes that it hits particularly hard those “taxpayers who have not done any tax planning.”  Realistically, Congress is not about to repeal this money-making machine, so the only solution is for individuals to undertake some basic tax planning to minimize the effect of this tax.  Some important criticisms of the AMT that are made by Ms. Olson in her report are set forth below.

The Alternative Minimum Tax has failed to achieve its original goal

The report cites statistics showing that more than 35,000 taxpayers with incomes above $200,000 pay no income tax at all – neither the Regular Tax nor the AMT.  How can this be?  The primary reason is that tax exempt municipal bonds, with the exception of so-called “private activity bonds,” are totally exempt from taxation, both for the AMT as well as the Regular tax.  This is one of the “loopholes” that Congress has not closed.

The AMT hits middle-income families who live in high-tax states particularly hard

The tax law allows a deduction for personal exemptions in computing the Regular Tax, generally recognizing the fact that the larger a family is the more income it needs to spend on meeting basic needs.  For 2013 this exemption is $3,900 per individual, so a family of four will not have to pay tax on the first $15,600 of income.  Unfortunately, personal exemptions are disallowed in computing the Alternative Minimum Tax, which means that the larger the family the more likely the taxpayer will be stuck paying the AMT.

Also, the Regular Tax deduction for state and local taxes is not allowed for purposes of the Alternative Minimum Tax.  Unfortunately, states with the highest state and local tax burden, and, thus, the highest AMT risk, are the most populous states – California and the New England states, including New York and New Jersey for example.  Too many families are getting stuck with the AMT just because they have children and happen to live in a high tax state.

The AMT is complicated and burdensome

Compliance costs for dealing with the Alternative Minimum Tax are almost unbelievable.  In a recent study the IRS estimated that taxpayers in the aggregate spent over 18 million hours completing and filing the AMT form, whether they needed to or not.  This amounts to over 12 hours for each person who actually paid the tax.  By comparison, the IRS estimates that it takes 22 hours to fill out the entire Form 1040.  Way too much time is being spent on the AMT, much of it unnecessary.

Other calls for repeal

The Taxpayer Advocate isn’t the only one calling for repeal of the AMT.  As noted in her report, in 1999 Congress voted to repeal the AMT but the legislation was vetoed by the President.  Both the 2005 Tax Reform Panel and the 2010 National Commission on Fiscal Responsibility and Reform recommended repealing the AMT.  Over the years both Democratic and Republican leaders in the House and the Senate have also proposed repealing it, but none of this ends up going anywhere.

Conclusion

The AMT is difficult to repeal, and most likely never will be repealed, because of the significant amount of revenue that it raises. Accepting this fact, the only thing individual taxpayers can do is to look out for themselves, and, as suggested by Ms. Olson, get involved in doing some basic tax planning.

The Patch

The annual Patch, as it has been called, is accomplished by indexing the AMT exemption amount for the annual change in the Consumer Price Index, as is already being done with many other tax law provisions.  Without this fix, the 2012 exemption for a married couple would have been $45,000; with the fix it will be $78,750 for 2012.  This difference would have meant nearly 30 million additional folks falling into the AMT.  The 2013 exemption indexing has not yet been computed by the IRS, but it is expected to be approximately $80,800.

The cost of the permanent fix

The Congressional Joint Committee on Taxation has calculated the ten-year cost of the permanent AMT patch to be a whopping 1.8 trillion dollars.  This is nearly one-half of the total cost of the changes made by the new law.  Interestingly, Congress exempted itself form the standard requirement that tax breaks , as well as any spending measure for that matter, be offset by revenue raisers.  But that did not have to be done here.

Other changes to the tax law affecting AMT payers

In addition to the Patch, numerous other provisions in the new law will have a direct impact on AMT payers.  One of these is the subject of tax credits.  A credit is a dollar-for-dollar reduction in your tax liability – i.e., a $100 tax credit will reduce your taxes by $100.  A $100 deduction, on the other hand, will save you taxes to the extent of your tax bracket.  For example, if an expense is AMT-deductible, and if you are in the 28% AMT bracket, a $100 deduction will reduce your taxes by $28.

Prior to these new law changes, many credits were allowable only against the Regular Tax and not against the Alternative Minimum Tax.  Examples of these are the child care credit and the residential energy tax credit.  Now, however, under the new law these and many other credits may be taken even by folks in the AMT.  This is a real benefit.

Conclusion

What a great relief the new law brings.  That being said, however, there are 4 million folks out there still paying the Alternative Minimum Tax, and there are lots of planning opportunities in existence to reduce the amount each person actually pays.  With the start of a new year, it behooves every AMT payer to plan to pay less AMT in 2013 than he or she paid in 2012.

Comparing tax brackets

Tax brackets for the Alternative Minimum Tax are progressive, as are those of the Regular Tax.  For 2012 the Regular Tax has six brackets, ranging from 10% to 35%, while the AMT has just two – 26% and 28%.  For AMT payers, however, the stated brackets are directly affected by the AMT exemption phaseout.

For a married couple, the phaseout begins at $150,000 and doesn’t stop until their income exceeds $440,000.  Within this range, each incremental $100 of income will result in a loss of $25 of the AMT exemption.  The result is that a 28% Alternative Minimum Tax bracket is increased by a factor of 25%, resulting in an effective AMT tax bracket of 35%!

Knowing one’s effective tax bracket is the way to do proper AMT planning.  It can be a costly mistake to deliberately accelerating income, thinking one is in an Alternative Minimum Tax bracket lower than the Regular Tax bracket, only to find out this actually is not the case.  Many year-end tax planning articles routinely suggest that people in the AMT do exactly this, but without knowing what your effective AMT tax rate is it could instead turn out to be a costly mistake.

The types of income can be accelerated or deferred

-  Employee bonuses and stock options

Employers may allow employees the choice of taking their bonuses currently or deferring them.  Employees also may be granted stock options, and these can be exercised in December or in January.  For nonqualified stock options, taxable income will be recognized immediately on the date of exercise – both for the AMT as well as Regular Tax purposes.  For qualified options (commonly known as incentive stock options, or ISOs), there is no taxable income on the date of exercise for Regular Tax purposes, but there is for the Alternative Minimum Tax.

-  Business income

A cash-method business could pay outstanding bills in December to reduce income, or wait to pay them in January, and this directly affects the amount of income reported on the business owner’s tax return.  The business also could hold off from sending out certain bills out towards the end of the year, postponing income into the following year.

-  Investment income

Capital gains – an individual controls the timing of any sales of investments, so capital gains could be recognized this year or next.

Rental income – a landlord might ask that the rent that is due on January 1^st be paid in this year or next.

Interest and dividends – an individual can shift between bonds and dividend-paying stocks to affect the amount of interest and dividend income received.

Conclusion

Knowing what tax bracket you are in is critical to tax planning.  An effective way to minimize the AMT is to look at the options available in terms of what income might be moved between 2012 and 2013, and then to figure out which of these choices will result in the lowest tax burden.  With year-end rapidly approaching, it’s definitely time to get out the calculator!

What happens upon conversion?

The dollars an employee contributes to a regular 401(k) and a regular IRA generally are pre-tax.  This means that income taxes have not yet been paid on these contributions; instead, taxes are paid when distributions are taken from the plan at retirement.  Along with the original contributions, the investment earnings in the plan likewise are taxable when withdrawn.  In contrast to these regular plans, a Roth plan is funded with after-tax dollars, so there are no taxes due at the time the funds are withdrawn, both for the original contributions as well as the accumulated earnings.

At the time of conversion from a regular plan to a Roth, income taxes must be paid on the full amount converted.  With this prepayment of taxes, no taxes then are due when the money is taken out.

The key question

The most critical part of a Roth conversion analysis is the comparison between the taxpayer’s current tax bracket and the tax bracket in which he or she expects to be in retirement.  The question is how does one go about making this comparison?

Current tax brackets

Under the current 2012 tax brackets, for the married filing jointly status the Regular Tax 28% bracket is reached at $142,700 of taxable income, the 33% bracket at $217,450, and the 35% bracket at $388,350.  Compare this to the AMT bracket of 26% for Alternative Minimum Taxable Income up to $175K, and 28% for everything over that level.  Looking at these brackets reveals something very interesting: AMT brackets are significantly lower at roughly comparable levels of income.

This fact alone is the reason individuals currently in the AMT need to give serious consideration to doing a Roth conversion.  The potential for a 7% savings from differences in the tax brackets (28% vs. 35%, e.g.), or even more, definitely is there.

Tax brackets – there will be change

Making things a little more difficult, however, is the fact that tax brackets likely will change.  The “Fiscal Cliff” means that, if Congress does not act soon, on January 1 Regular Tax rates will increase, and it will have been even more attractive to do a Roth conversion today rather than waiting until next year.  Equally as important is the fact that tax brackets for most folks will be less in retirement than what they are today, simply due to the nature of our graduated tax rate system.

Conclusion

With year-end and the Fiscal Cliff approaching, every individual with a 401(k) or a regular IRA has a real opportunity to save taxes.  This opportunity is much greater for taxpayers who currently are paying the Alternative Minimum Tax than it is for those who are not.  A little time spent making a Roth conversion analysis easily could result in thousands of dollars in tax savings.

As of January 1 of this year the AMT exemption reverted back to what it was 20 years ago.  Through a series of successive and annual temporary “patches” over this 20-year period, the exemption has been indexed for inflation so as to keep the number of Alternative Minimum Tax payers relatively constant – currently approximately 4 million taxpayers.  These patches generally have been for just one year at a time because the cost of doing them is so large – the current one-year estimate is $40 billion.  Some day there may be a permanent fix, but it is unlikely that this will happen anytime soon.

The 2011 AMT exemption amount, itself the product of last year’s patch, was $48,450 for single taxpayers and $74,450 for married couples filing jointly.  What this exemption amount generally means is that a taxpayer’s Alternative Minimum Taxable Income (AMTI) for 2011 had to be more than $48,450 higher ($74,450 for couples) than the taxpayer’s Regular Tax taxable income before the AMT even would begin to apply.

For 2012, these exemption amounts revert back to $33,750 for single taxpayers and $45,000 for married couples filing jointly, and will stay there unless Congress acts to update them for inflation.  The significant difference in these exemption amounts equates to 26 million new AMT payers.

Congress returns for its post-election lame duck session in early November, takes a long Thanksgiving break, and then returns for just a few more weeks before the final adjournment of the 112^th Congress.  The Congressional agenda is over-full, with too many things to do in addition to taxes to get them all done by year-end.  In just in the tax area it has to deal with the expiration of the “Bush tax cuts,” the expired estate tax, and dozens of other “tax extenders” – those miscellaneous provisions in the tax law that expired on December 31 of last year.

Stay tuned for developments on the patch – “conventional wisdom” is that Congress will get this done, but it is likely to be the normal mad scramble as this and all of the other legislative needs are addressed in this short post-election time period.

Congressional Research Service (CRS)

The CRS is an agency of the U.S. Government, located within the Library of Congress.  Its purpose is to provide politically neutral legal and policy analysis to Members of both the House and the Senate.  Its reports provide straightforward and objective analyses of important legal issues.

What is a stock option?

A stock option simply is a right, granted by an employer to an employee, to buy a certain number of shares of the employer’s stock at a set price.  If the stock goes up in value the employee receives additional compensation in the form of the appreciation in the stock’s price.  For example, if Employer A grants Employee X the right to buy 1,000 shares of stock at $10 per share, and the stock price goes to $15 when the employee exercises the option, the individual will have received additional compensation, over and above his or her base salary, in the amount of $5,000.

Two types of employee stock options

There are only two basic types of employee stock options – “qualified” and “nonqualified.”  Because qualified options must meet certain requirements in order to be labeled as such, and they have less favorable tax results for the issuing employers, these are less frequently encountered.  Nonqualified options, on the other hand, are easier to issue because of the lack of these requirements, and along with the more favorable tax treatment to the employer, are more commonly found.  The Alternative Minimum Tax treatment is significantly different between these two types of options, so it is very important as a first step that the employee know which type of option he or she has received.

Qualified stock options

Qualified stock options are also known by their Internal Revenue Code label “Incentive Stock Options,” or “ISOs.”  Employees prefer receiving these because there is no tax due on the date of exercise for Regular Tax purposes.  So long as certain holding period requirements are met, the employee will have long-term capital gain treatment on subsequent sale of these shares, resulting in a significant tax savings because the capital gains tax rate is much lower than the tax rate on ordinary income.

Nonqualified stock options

The Regular Tax treatment of nonqualified stock options is much different than it is for ISOs.  For this type of option, on the date of exercise the employee will have compensation income, reported on his or her W-2, for the increase in the value of the stock.  In addition to the Regular Tax rates applying (currently as high as 35%), FICA taxes also will be due.

Example – comparison of Regular Tax treatment

Using the above example of $5 of appreciation on 1,000 options, the tax savings alone from exercising an ISO as compared to a nonqualifed option could be nearly $1,400, a very significant part of the total $5,000 gain.  This represents the difference between a capital gains rate of 15% applying and an ordinary income rate of as high as 42.65% (35% income tax and 7.65% FICA tax).

Alternative Minimum Tax

Because the AMT was designed to put a damper on some of the favorable Regular Tax treatments found in the tax law, there is a price to be paid by those exercising ISOs.  While there is no Regular Tax to be paid on exercise of an ISO, the “spread” (the $5 in our example) per share is a tax preference item, and must be included in the employee’s AMT income (“AMTI”).  By including this amount, the employee’s AMTI will be higher than his or her Regular Tax, thus potentially triggering the AMT in the year of exercise.

AMT planning for ISOs

The planning to minimize – and in many cases to completely eliminate – the AMT impact from exercise of ISOs is fairly easy.  All one has to do is a little planning before the exercise, testing for the AMT using alternative amounts of ISO shares.  For example, it could be that the $5,000 in our example is not enough of a tax preference item to trigger the AMT, while exercising several years’ worth of options at once would trigger the AMT.  In this case, the employee is better off spreading the exercise over several years instead of doing them all in one year.

Conclusion

There are 10 million people out there who can do just two simple things to avoid unnecessarily paying the Alternative Minimum Tax.  The first is to understand what kind of option – ISO or nonqualified – he or she has.  The second, assuming it is an ISO, is to calculate the AMT impact from the exercise of different amounts of options, and then to select the amount that avoids the AMT.  It’s simple and easy to do, and the result could be saving thousands of dollars of taxes.

Property taxes

State and local taxes, including income taxes as well as property taxes, are a tax item found on the returns of nearly 95 percent of all folks caught in the Alternative Minimum Tax.  This is due to the fact that, while state and local taxes are an allowable itemized deduction for purposes of the Regular Tax, not one dollar of these taxes is allowed as a deduction in computing the AMT.

The President’s AMT dilemma

Even after moving into the White House, our current president chose to keep his former home, located on the south side of Chicago.  As such, it is he who remains responsible for making the monthly mortgage payments as well as for the property taxes on the home.  It’s a decent-sized house, with a value something in excess of $1 million.  Take Chicago’s and Illinois’ relatively high property tax burden, along with a hefty state income tax burden, and the President finds himself writing a fairly sizable AMT check each year.

The President’s AMT planning opportunity.

The President’s planning opportunity to lessen his tax burden is the same as it is for every other AMT payer – taking advantage of any opportunity to accelerate the payment of property taxes, or possibly to delay paying them if that works better, the deduction should be put in a year he is not in the Alternative Minimum Tax.  Like many individuals, our current president is an individual taxpayer who moves in and out of the AMT from year to year.  Because of this, thousands of dollars of Alternative Minimum Tax could be saved by using this simple planning strategy.

Other AMT issues

Interest paid on a mortgage used to acquire a president’s home is deductible both for the Alternative Minimum Tax as well as for the Regular Tax, so that generally is not a part of the problem.  A large AMT item that does hit, however, is the phaseout of the AMT exemption.  Because the President’s income was relatively high, the entire exemption amount of $74,450 that he and his wife otherwise were entitled to on their joint return was eliminated in its entirety.

Conclusion

Everyone potentially is subject to the Alternative Minimum Tax.  While in prior years our current president was not hit by it, a combination of a high level of income and the state and local tax itemized deduction ended up triggering the nasty beast.  Like many taxpayers, discovering this at the time of preparing the tax return is too late to do anything about it for that year.  The good news, however, is that there is still plenty of time to do planning for 2012’s taxes to minimize the potential impact of the AMT hitting once again.

The costs of home ownership

Along with home ownership comes a mortgage, with monthly payments seemingly going on forever as well as an obligation to pay property taxes.  While a small portion of the monthly mortgage payment will go towards paying done the principal of the loan, the largest part of each payment will be interest.  This interest portion has tax implications, both for the Regular Tax as well as the AMT, as discussed below.

Real estate taxes are annual obligations that must be paid to state and local governments.  Each taxing jurisdiction sets its own payment schedule – some are due annually while others may be semiannually or quarterly.  One of the things new homeowners may experience is the lending bank requiring that property taxes be escrowed.  In this case, each monthly mortgage payment includes an estimate of 1/12^th of the total property taxes due.  The bank then holds these funds in escrow, and it is the bank that makes the actual payments to the taxing jurisdiction.

Mortgage interest

The good news is that interest paid on a mortgage used to acquire a home is fully deductible, both for the AMT as well as the Regular Tax. (There is a $1 million limitation on the debt for this purpose, but we’ll assume this is not a problem for the average reader.)

AMT problems arise, however, when a second mortgage or home equity line of credit is put on the home.  While the interest on these loans similarly is deductible for the Regular Tax (for loans of up to $100,000), the Alternative Minimum Tax limits the deduction to loans the proceeds of which are used to make improvements to the residence.  Thus, for example, if the line of credit is used to buy a new car, that interest is no longer deductible for the AMT.

Real estate taxes

Here is where the real “bite” is felt from the Alternative Minimum Tax.  Property taxes, while fully deductible for the Regular Tax, are not deductible at all for purposes of the AMT.  This is the reason property taxes, along with state income taxes, are the single largest item affecting the majority of Alternative Minimum Tax payers.  In fact, nearly 95% of everyone stuck in the AMT is affected by this item alone.

Planning opportunities

Is it possible to own a home and not get stuck by the Alternative Minimum Tax?  The answer is yes, depending of course on each individual’s situation.  The key to this, however, is doing just a little planning for the AMT-triggering interest and taxes items.

Planning for interest – as discussed above, the primary mortgage on the house is not an AMT problem.  If consideration is being given, however, to using the equity in the home for making other purchases such as the car example above, it could make more sense to look to a traditional auto loan instead of a home equity loan.  A simple comparison of the after-tax cost of the interest needs to be made.

Planning for taxes – the key to minimizing the AMT impact from real estate taxes is to know whether you will be in the Alternative Minimum Tax this year or next year.  If you can pay all or even a part of your real estate taxes in a year you are not in the AMT, you will get a tax benefit from the deduction, which could be a refund of up to 35 percent of the property tax bill.  As an example, if you receive a tax bill in the fall and it is not due until January, you have total discretion to pay it in either year.  If you already are in the AMT this year but do not expect to be until next year, simply wait until January to pay the bill.  Note that if your taxes are escrowed you will need to talk with your banker about the timing of these payments.

Don’t let the joys of home ownership be soured by having the AMT take a surprise “bite” out of your investment in the home in the form of additional taxes you weren’t anticipating!

Presidential campaign season

Once again (how does it come around so often?) we find ourselves in the throes of a Presidential campaign.  Along with the many unpleasantries being exchanged by candidates is the challenge to release personal income tax returns.  After much prodding, one candidate recently, but reluctantly, released his Form 1040, and this tax return shows that he in fact definitely is in the wealthy, even “super wealthy,” category.

Do the wealthy pay the AMT?

The positive news is that the answer to this question is “yes.”  However, the not-so-good news is seeing the actual amount of Alternative Minimum Tax that this individual in fact is paying.  In the two tax years that this presidential candidate has paid the AMT, the additional tax burden that resulted was barely over one percent of his income.  Specifically, without the AMT his total Federal tax rate was 13.3% in 2010, and 14.3% in 2011.  The AMT added 1.1% each year, for a whopping tax rate of 14.4% and 15.4%, respectively.  And this is on over $20 million of income in each of the two years!

What are the Alternative Minimum Tax triggers at this level of income?

The items that are high on the list of every single AMT payer are the same ones that also hit the wealthy.  These are both on the income side as well as on the deduction side, and they principally revolve around capital gains and itemized deductions, and for the itemized deductions in particular the deductions for state income taxes as well as for property taxes.

Capital gains

Without even looking at this individual’s tax return, as one quickly can conclude from the tax rates shown above, most of this individual’s income comes from long-term capital gains which are eligible to be taxed at the low 15% rate instead of ordinary income rates of 35%.  These large capital gains cause two Alternative Minimum Tax problems – the obvious one is the loss of the AMT exemption because of the high level of taxable income.  But the other is the effect of having to pay state income taxes on these capital gains as well as high property tax payments.

State income taxes

Most, if not all, states tax capital gains at the same rate as ordinary income.  Thus, a large capital gain will carry with it the same state income tax burden as would the same amount of ordinary income.  The larger an individual’s state income tax of course the greater his chances of being caught in the Alternative Minimum Tax.  This same basic problem exists for the wealthy as it does for every other AMT payer.

Property taxes

Along with wealth comes the need to own homes – usually large ones and usually more than one.  Accompanying this ownership privilege is the requirement to pay significant amounts of property taxes – surprisingly the wealthy get no break on their property taxes.  Just like state income taxes, property taxes are one of the most common items for individuals who are stuck in the Alternative Minimum Tax.

What could this individual do to reduce his Alternative Minimum Tax?

There are no secrets here – the same actions that every AMT payer can take would help a wealthy individual reduce his Alternative Minimum Tax.  For example, one is watching the timing of payment of state income taxes and property taxes at year-end.  If a taxpayer is in the AMT one year but not the next, whether the individual is wealthy or not wealthy, trying to get the state tax deductions paid in the year he is not in the Alternative Minimum Tax will make a big difference.  Also, if an individual has multiple homes, the opportunity to change his domicile to a state that doesn’t have income taxes – like Florida, for example – would save significant state income taxes and correspondingly reduce the individual’s AMT burden.  The same Alternative Minimum Tax planning concepts apply to everybody!

Fall 2011 SOI Bulletin

The Fall 2011 Bulletin includes statistics for tax returns filed in 2010 for the tax year 2009.  For this period a total of 142.5 million individual income tax returns were filed, 3.8 million of which were Alternative Minimum Tax payers paying a total of $22.6 billion of AMT.  These figures represent a decline from the previous year, during which 3.9 million individuals paid the AMT in the total amount of $25.7 billion.  For tax year 2009 the average AMT paid was $5,900, compared to $6,500 for the previous year.

Who are the AMT payers?

The Bulletin breaks down the makeup of AMT payers by level of adjusted gross income (AGI).  Even with the decline, this data shows that the distribution stayed essentially the same as the prior year, with 24% of AMT payers being those in the $100-200,000 AGI range and the majority – 63% – being in the $200-500,000 range.  So many of those well below what President Obama considers “the rich” are stuck paying this tax that originally was designed to hit only the true wealthy.

Why did the AMT burden drop?

The explanation for the decrease in number of AMT payers and total dollars of Alternative Minimum Tax paid is not the result of any change in our government’s tax policy, unfortunately, but rather is explained simply by the current economic downturn.  Specifically, as incomes decrease individuals are having less of those items that trigger the AMT.  This applies both on the deduction side of the Alternative Minimum Tax as well as on the income side.

- Itemized deductions, in particular the deduction for state and local taxes

The amount of itemized deductions taken by individuals decreased from 2008 to 2009.  The one most important to Alternative Minimum Tax payers, the deduction for state and local income taxes and property taxes, itself decreased 7.5 percent.  As all AMT payers know, the more state and local taxes paid, the greater the Alternative Minimum Tax burden.  It follows logically, therefore, that lower taxes paid potentially means a lower AMT burden.  This won’t necessarily apply to all taxpayers, particularly those whose state legislators saw fit to increase taxes such as Illinois, but in general this result follows.

- Capital gains and dividend income

Capital gains and dividends are taxed at the same low rate both for the Regular Tax as well as the Alternative Minimum Tax.  However, the more of these items a taxpayer has the more the taxpayer’s AMT exemption will be phased out and the correspondingly higher his Alternative Minimum Tax burden will be.  It follows, therefore, that the worse the stock market does, and the more that companies cut back on their dividends, the less that individuals will see this impact on their AMT exemptions.  Again, this won’t necessarily apply across the board, but it generally explains the result.

What should AMT payers do?

Planning to minimize the Alternative Minimum Tax is the same regardless of any changes in a taxpayer’s individual position.  If an individual was on the cusp and the current state of the economy dropped him out of the AMT, there are opportunities to time some of his income and deductions to take advantage of this.  For example, folks not in the AMT may want to accelerate the deduction of property taxes to take advantage of the opportunity to get a Regular Tax benefit that is not available once back in the AMT.  But caution needs to be exercised as a slight change in facts can throw the individual right back into the AMT again.  So planning still is, and always will be, the key.

As taxpayers get ready to undertake preparation of their 2011 taxes, this information will be very useful in thinking about 2012 planning.  Certainly the 3.8 million still stuck in the AMT need to do this, as well as the 100,000 that dropped out of the AMT last year.