AMT created by exclusion items is not recoverable on form
8801. Only deferral items will be credited. Also, you
cannot recover AMT as a credit in any year you are subject
to AMT. As a California resident with your income level
you'll never recover any AMT, exclusion or deferral. Sorry.
You probably woulldn't be paying AMT if you had not taken
your California tax as a deduction. To avoid AMT don't
schedule A items, but, of course, that's a bit
counterproductive, isn't it?

ed

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

My Federal taxes for 2005 has only following entries (rounded)
-- Wages: about 180K (both spouses combined)
-- Interest ~= 1K; Dividends ~= 10K
-- Personal exemptions
-- Schedule A (itemized deduction): only 3 entries are:
property tax ~= 4K; mortgage interest ~= 15K;
CA income tax ~= 15K; Allowable Schedule A Deduction
is capped.

There are no other incomes / deductions, no tax shelters, no
ISO. Nothing else. Still, I am subject to the Federal AMT,
because the California income tax rates are so high (9.3% on
pretty much all of income). The Alternative Minimum Tax
(AMT) is about 4K , on top of the regular tax.

In theory, I can claim a credit for the extra payment in
2006 using form 8801, if my regular taxes are less than the
AMT. However, I just did some projections and the results
are very discouraging.

Based on a modest increase in wage income ONLY, and no other
changes, in income and deductions, I would continue to have
AMT for foreseeable future. In fact, AMT will increase from
year to year. Furthermore, if the law related to the
increased AMT exemption of 58K expires, the AMT would
increase dramatically.

Q1. What rational economic behavior can my wife and I adopt
that would allow us to ever claim the credit? By rational, I
mean, not necessarily minimizing taxes, but maximizing the
"keep" portion.

Q2. For 2006, I am fortunate to receive a special, one-time,
large bonus-kind of payment (called vested interest) from my
employer. There was no choice in when to receive -- it had
to be received in 2006. It is classified as wage, and
appears on the pay slip as such. This extra bonus has
doubled the wage income -- to 400K, which means --
personal exemption reduced to ZERO -- schedule A
deduction reduced very significantly -- most of the
additional income subject to 36% federal bracket -- PLUS
an AMT of about 18K.

I am VERY THANKFUL for this income, so I am not complaining.
I would just like to know if there are any ways to reduce
the tax hit, particularly the AMT.

Q3. In 2007, my income will be back to normal, with an
"accumulated AMT credit of more than 20K". What sort of
(again, rational) economic behavior would help claim this
credit?

Q4. The income split between spouses is 60%, 40%. My
projections show that even if my wife stopped working, I
would still continue to be subject to (smaller amount) of
AMT. So, can I EVER use that credit?

Q5. I have some NON-QUALIFIED options (some already
exercised in the previous years; some vested but not
exercised) -- all are "in the money". How does this impact
AMT? Does it make sense to exercise it in a really high
income year, where everything has been phased out, like
2006, or in some other year?

Are there any softwares / tools that allow for multi-year
AMT projection and minimization? Play out different
scenarios? (I know Congress can change laws at any time, but
still, one must plan...)

I would appreciate some insights.

Spoca

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >