Alternative Minimum Tax Confusion

[BMEPhDinCO]

Hi all,

Very sorry if this has been asked before, but the search buttons aren't working for more than 1 word in the search bar so I'm just going to put this out there...

This year, my husband and I are looking at hitting $104,200 (ish) in income (yay!) - but now I've become aware of (and concerned) about the Alternative Minimum Tax...

We have put $11k into tIRAs, plus I have $10k going into my 401k. DH's university automatically puts aside 5% of his income into his 401k (so about $2,400 for 2016).  How much more does DH have to put into his 401k so we avoid the AMT? (note, not actually 401k, we work for universities, so it's the equivalent - same deal though basically)  Also, DH has made around $5k of that total income as self-employment income (and I estimate about $1k more to go this year so $6k of the $104k) - if that makes a difference...? We do not have any SE IRA type thing open yet for him. We have paid quarterly taxes on it.

I assume we'd need to put aside about $7,900 more for him, correct? Or do the tIRA contributions also lower our gross for AMT purposes?

Thank you for your help!

[oldmannickels]

I don't know the make up of your income, but I don't think you are in AMT unless the rest of your income is taxed at a very low rate.

$102,400 - 83,800 = 18,600  Income less exemption for MFS

18,600 *26% = $4,836   Income over exemption with AMT rate applied.

If you are projected to pay more than $4,900 in income taxes, then you don't pay AMT. If you are projected to pay less than that then that's less than a 5% effective rate.

Run the numbers you have through this form---https://www.irs.gov/pub/irs-pdf/f6251.pdf

[MDM]

Run the numbers you have through this form---https://www.irs.gov/pub/irs-pdf/f6251.pdf

That will indeed provide the definitive answer.

You could also use some commercial tax program such as TaxAct or Turbotax (the 2015 versions will likely be close enough).  Or, if your situation isn't too complex, the tax calculations in the case study spreadsheet do include the AMT form and use 2016 numbers.

[BMEPhDinCO]

Thanks y'all!

Income breakdown:
just under $100k W2 wages
about $7750 SE wages
a few hundred in qualified gains, interest on accounts, etc
Ends up being right at $108,100 (plus or minus about $100 from estimations)

I did check out the case study sheet (awesome job on that!) and I think we are hovering RIGHT AT the limit ... so, next question...

I can't tell from this sheet for sure, but it looks like the tIRA contribution also reduces our gross income for ATM, is that correct? Right now it looks like we are above it by less than $300 so if that's the case, then I should be able to just increase DH's contributions by a few $1000 and be ok... is that correct??

[MDM]

I can't tell from this sheet for sure, but it looks like the tIRA contribution also reduces our gross income for ATM, is that correct? Right now it looks like we are above it by less than $300 so if that's the case, then I should be able to just increase DH's contributions by a few $1000 and be ok... is that correct??

Would need exact inputs to say with any certainty, but at first glance you don't appear anywhere close to paying the AMT adder.  See cells C33 and C34 in the 'Form6251' tab: you don't pay any AMT adder until C33>C34.  I may have fat-fingered some numbers but from a quick read of your situation I get ~$6K in C33 and $13K in C34.

You should not see a huge step change in the total amount of tax due when you cross the AMT boundaries.  The marginal rate will change, but it's just like moving from one bracket to the next in the normal tax system.