Ask the tax adviser
To my readers:
I appreciate all the questions
you send each week. But because of the volume, you may not have
the answer you need with the filing deadline less than a week away.
If you haven't heard back from me and you really need an answer
before you can file, check out the full Bankrate
Taxes site, especially my previous
columns and the Tax
Toolbox. What you need may be there. If not, consider seeking
of time to file your federal and state returns so you'll have
time to get the tax answer you need. But remember: if you do get
an extension, be sure to pay what you might owe to avoid interest
Can I avoid the AMT by skipping deductions?
Dear Tax Talk:
I paid a very large state income tax bill last year because of a
large capital gain on the one-time sale of income property.
This year my income is more typical, but if I deduct
all the state income tax, I will have to pay the AMT. I would rather
not fool with Form 6251.
Is there a law that says I must deduct everything
I am able? It seems taxpayers are always overpaying (and not being
refunded) taxes because of a failure to take deductions to which
they are entitled. In this case, just such a move will save me headaches
and money. What is your advice?
No one wants to fool with Form
6251, which relates to alternative minimum tax. The AMT is the
minimum amount of tax the government is willing to rake you for
when you have what are known as tax preferences and claim certain
deductions, such as state taxes.
Looking at the form, at least while sober, is intimidating.
However, not completing the form can lead you to lose a tax benefit
known as the 'AMT credit carryforward,' which is claimed on equally
8801, Credit for Prior Year AMT. Fortunately for your liver,
you only have to complete Form 8801 on your next year's tax return.
The AMT comes from claiming tax preferences and certain
large itemized deductions, such as state income taxes and miscellaneous
itemized deductions. These items are either computed differently
for AMT (timing differences) or not allowed at all for AMT (exclusion
If an item is a timing difference, then you can claim
a credit in a subsequent year against your regular tax liability
for the AMT attributable to that item in a prior year. If an item
is an exclusion item such as taxes and miscellaneous itemized deductions,
then you do not get a credit for that item going forward. If you
have a mix of timing differences and exclusion items, you need to
complete Form 6251 so at least you have the credit to 'carryforward.'
I don't know of any rule that requires you to claim
all the deductions to which you are entitled. However, you should
at least claim as much of the state taxes that you paid as you can
without sending you into AMT. Alternatively, I recommend you visit
a sober paid preparer, if you can find one this time of year.
-- Updated: April 5, 2004