Case Study Individual Taxes

The AMT: What Your Accountant Doesn't Know Can Hurt You

The Alternative Minimum Tax is a complex, counter-intuitive calculation. Strategies used to limit ordinary income taxes can backfire when applied to the AMT. High net-worth individuals must be advised by tax professionals thoroughly versed in the AMT, or they risk falling into an AMT trap.

One of our clients came to us after using a sole practitioner to prepare a tax return. The inexperienced preparer did not properly identify and analyze all the deductions and preference items. As a result, the practitioner added back more than necessary to the AMT calculation, and the client paid an enormous tax bill.

We reviewed her return, spotted the errors, and filed an amended return with a significant decrease in tax liability. Then we sat down with the client to plan for the coming year. We suggested changes to the taxpayer's investment strategy, which reduced the taxpayer's total tax burden. We also told her that in coming years, we might be able to claim credit for her AMT payments to lower future tax liabilities.

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