Instead of trying to minimize the alternative minimum tax, consider increasing it.
At the surface, this may go against the grain of reasoning since to avoid AMT, the common thought is to try to postpone taxable income to the next year and not to accelerate itemized deductions that are added back for AMT such as state and local income and property taxes as well as certain home equity interest and employee business expenses into the current year.
The AMT is a tax structure that that runs parallel to the regular tax system. Your tax liability is the higher of the calculation of the two methods. The regular tax liability is based on seven tax brackets ranging between 10% and 39.6% and may be further reduced by various tax credits. AMT, on the other hand, has just two rates – 26% for income up to $186,300 and 28% for income above that amount. Your AMT liability is based on your alternative minimum taxable income (basically your adjusted gross income minus total itemized deductions, plus certain income items and disallowing specific itemized deductions; your personal and dependency exemptions and the standard deduction are not allowed under AMT) less an AMT exemption that is based on your filing status ($53,900 for singles and heads of household, $83,800 for couples and $41,900 for married filing separately). Your exemption amount is reduced $.25 for each dollar of AMT income above your filing status threshold ($119,700 for singles, $159,700 for couples and $79,850 for married filing separately). The result is then multiplied by either the 26% or 28% applicable AMT rate.
In certain cases, however, it might make sense to accelerate income into 2016 such as receiving an inordinately large year-end bonus, or nonrecurring items such as collecting a past due rent settlement, forgiveness of debt or recovery of business debts, payments for services or making a Roth conversion. In doing so, you might trigger AMT in 2016, but avoid it in 2017, thereby making the additional income subject to tax at AMT rates of 26-28%, rather than being kicked into a higher regular tax bracket of 35% or 39.6%. If you do not expect to be in AMT next year, the tax savings could be worth the trade-off of paying tax on the income a year early; but proper tax planning is highly recommended before taking action.
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