- quote -

Right. I should've said TMT instead of AMT.

So to make this concrete:

Let's say that if I deduct state income tax, then my
"regular tax" (RT) is $40,000 and my TMT is $42,000. So I
have to pay 42k.

Suppose that switching to the sales tax deduction raises my
RT to $45,000. My TMT is still $42,000 (as you pointed
out). But now I have to pay 45k.

I will save some money on state income taxes, but it's
unlikely to be in the amount of 3k or greater. As Katie
said, I should calculate it both ways to be sure.

I guess my only point is that even though your TMT stays the
same, it's entirely possible that you still lose out b/c
your RT *could* go much higher as a result of switching to
the sales tax deduction. So this is certainly not a slam
dunk.

Of course, let me know if I'm still making a mistake in my
analysis!

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davidfinance[at]gmail.com wrote:

- quote -


Well ... off the top of my head ...

It seems to me this could work in the right circumstances.
Remember, the AMT is the excess of the tentative minimum tax
(TMT) over the regular tax. Your total tax liability is the
regular tax plus the AMT. Or, to put it more simply, your
total tax liability is the greater of the TMT or the regular
tax.

The deduction (sales tax or income tax) will not affect the
TMT, because either one will be added back to calculate
alternative minimum taxable income (AMTI). If you deducted
the 15k of state income tax your regular tax would be less
but your AMT (the excess of the TMT over the regular tax)
will be more. If you deduct the $5k sales tax instead, the
TMT will be the same; the regular tax will go up but the AMT
will go down.

And if you happen to live in a state that (a) automatically
conforms to federal income tax law changes or (b) has
specifically conformed to the sales tax deduction, you
probably have to add back the state income tax deduction but
you probably don't have to add back the sales tax deduction.
So your state tax liability would go down.

My brain is too fuzzy at the moment to figure out whether
choosing the lower deduction for regular tax purposes (while
the TMT remains the same either way) could push the regular
tax ABOVE the TMT and thus, while taking you out of AMT
entirely, increase your total federal tax liability. I'd
calculate it both ways just to make sure.

Katie in San Diego

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avidfinance[at]gmail.com wrote:

- quote -

What you are overlooking here is that AMT is NOT an add-on
tax; it is actually a separate tax system. IRS discuises
this by the way it handles the AMT on your return. What
actually happens, though, is that, as you surmise, your
regular tax goes up. But, since the AMT doesn't change, the
add-on amount goes down! Because you subtract the regular
tax from the AMT, any change in an AMT item will increase
the regular tax by exactly the same amount as the AMT goes
down -- or vice versa. So, the total tax remains unchanged.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

I've seen the following idea bandied about. TaxCut even
suggested it:

Let's say you live in NY state. You're doing your federal
return, and you're deciding if you want to deduct 15k of
state & local income tax or 5k of state and local sales tax.

Well, normally you'd deduct the income tax (since it's a
greater number), but let's say that you're subject to the
AMT. So the argument for deducting *sales* tax instead goes
like this:

1. Since neither deduction matters for the AMT, switching
from the income tax deduction to the sales tax deduction
won't affect your federal income tax liability. So far,
it's a wash...

2. Now when you do your state income taxes, you get to take
into account your federal deductions. Had you deducted
state income traxes on your federal form, you'd have to add
them back in for your state form. But if you deducted sales
tax instead, then (at least in certain states), you don't
have to add them back in.

Net result: Your *state* income taxes go down as a result of
deducting your sales tax on your *federal* form.

Am I understanding this right?

The thing I don't get is step 1. Let's say I deduct the 5k
of sales tax on my federal form instead of 15k of state
income tax. Sure, this doesn't affect the AMT, but it could
affect my "regular" federal income taxes. Won't my regular
tax liability go up, possible to the point of making the AMT
moot?

Thanks for any help any of you can give.

David

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >