Commentary by Adam Cmejla
The last series of posts was spent attempting to shed light on the financial services profession, the different business models, and ways in which financial professionals work with clients. I sincerely hope you found that information valuable and applicable and that you can use it to make a well-informed decision on who you align with to serve you and your family.
Moving along, I’d like to switch gears and discuss AMT, or the Alternative Minimum Tax. Originally enacted in 1969 and aimed at addressing the fact that approximately 200 Americans found a way not to pay income tax, this piece of legislation has grown more complex and is focused on ensuring that all Americans pay a minimum amount of federal income tax. In essence, it sets a floor on total tax liability.
The number of taxpayers affected by AMT liability has grown from about 20,000 in 1970 to an estimated 3.9million in 2013 and is projected to be more than 6 million by 2023. Without proper planning, you could find yourself paying this additional tax.
AMT is calculated from AMTI (AMT Income), which equals AGI (adjusted gross income) minus itemized deductions plus AMT preference items. The list of preference items is too long to fit into this column, so one planning piece when considering making investments is to ask yourself or your financial professional whether the gains and/or income on the investment is subject to AMTI.
You may be asking yourself “How do I know if I’m subject to AMT?” The most straight-forward way to answer that question is this: if you’re AMTI is above $82,100 and you file “married filing jointly” or it’s above $52,800 as a single taxpayer, you’ll have to go through the calculation process to determine IF you owe MORE taxes than you’ve already paid through the traditional tax calculation process. After calculation, if your AMT liability is more than your regular tax liability, your “AMT tax” will be the difference between the numbers.
To find out if you paid AMT taxes, you’ll want to look on page two of your Form 1040 and look at Line 45.
Tax law affects the investment environment, your investment decisions, and can have a profound effect on the long-term success of your financial success. Ensuring that your assets and financial strategies are working as tax-efficient as possible is imperative to maximizing your potential returns.
Adam Cmejla, CMFC® is President of Integrated Planning & Wealth Management, a comprehensive financial services firm located in Carmel providing comprehensive retirement planning strategies to individuals near or in retirement. He can be reached at 853-6777 or firstname.lastname@example.org.