Editor's note: This is the transcript of Kiplinger Editorial Director Kevin McCormally's commentary on the March 26 broadcast of Nightly Business Report.
I got a question the other day from a Nightly Business Report viewer wondering if she'd come up with a clever way around the alternative minimum tax. She knew that one of the things that can trigger the AMT is a fat state income-tax deduction. Could she simply not claim all of her state income tax, if that would save her from being tossed into the notorious netherworld of the alternative minimum tax?
Believe it or not, the IRS recently took a taxpayer to court for trying to do just that -- avoid the AMT by not claiming all of her legitimate tax breaks. And, the IRS won. A federal court said the alternative minimum tax is figured the same way whether or not a taxpayer takes advantage of all of her deductions on her regular tax return.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
But here's the most interesting thing about that case: Imposing the AMT did not add one dime to what the taxpayer owed the IRS. And that brings us to a critical issue for the viewer who asked the question ... and for all of you.
Remember this: You only pay the AMT when it's more than your regular income tax liability.
So, if you avoid the AMT by increasing your regular tax bill -- by skipping itemized deductions or exemptions for your kids, for example -- you're not doing yourself any favor. In fact, you're shooting yourself in the foot. The IRS is still going to collect the same amount ... or maybe more.
Now, in cases involving certain tax credits that are allowed under the regular rules but wiped out by the AMT, skipping a regular tax break to avoid the AMT might save some money. But don't think you can come out ahead by forfeiting itemized deductions.
See Kevin's previous tip.
-
Embracing Generative AI for Financial SuccessGenerative AI has the potential to reshape how we approach learning about and managing our personal finances.
-
Gen X Retirement Is in Trouble: Here's What You Can DoEven as they approach retirement age, half of Gen Xers have not done any retirement planning.
-
New Law Delivers Tax Breaks to Natural Disaster Victims, But Is It Enough?Tax Relief The legislation provides critical tax relief to thousands of natural disaster victims across the country.
-
Five Tax-Savvy Ways To Donate This Holiday SeasonCharitable Donations Food pantries, toy drives, and animal sanctuaries are popular ways to support others year-round.
-
Can Tariffs Make Childcare More Affordable?Tariffs President-elect Trump suggested tariffs can address the childcare crisis, but economists are doubtful.
-
Are You a Renter? You Could Save on TaxesTax Breaks With these tax savings at your fingertips, rent may be more affordable
-
2025 Open Enrollment: Some DACA Recipients Can Purchase Affordable Care Act Health InsuranceOpen Enrollment Your eligibility to purchase health insurance from the federal marketplace may have changed. Here's what you need to know.
-
Holiday Shopping Tax Tips for Business OwnersTax Deductions Before hitting the sales, businesses should know these key deductions and look out for overspending.
-
NYC Congestion Pricing: Ghost Tax or Necessary Fee?State Taxes Drivers headed to Manhattan’s downtown district will face a new $9 toll in January.
-
Tax Credit vs. Tax Deduction: What’s the Difference?Tax Breaks Your guide to tax deductions and credits, how the IRS treats them differently, and how they impact your tax bill.
