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Oglesby: Beware of tax woes from AMT
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First, apologies to a fine organization for my referring to it as the "Junior Service League" in my last column which referenced the annual Charity Ball which it has sponsored for many years. Same organization and mission, it was long known simply as the Junior Service League. I just let it slip.

Next, many taxpayers will have to pay that dreaded alternative minimum tax when we soon file our 2007 returns if Congress doesn't act quickly. It's looking more and more likely they'll go home for the holidays without acting. It's a crying shame. Neither party is blame free.

Democrats now controlling both houses pledged to pay as we go, meaning if legislation imposes more expense it must be offset with more income. They propose higher taxes on "the wealthy." Republicans are against tax hikes and want budget cuts. Neither side shows a will to compromise. No wonder Americans are becoming more cynical and disgusted.

Put in simple (?) terms, the AMT is a mechanism designed to ensure the wealthy aren't able to escape paying some tax in some years. It starts with the adjusted gross income and adds back a number of items such as most itemized deductions except charitable contributions and home mortgage interest. It adds back personal exemptions and even the standard deduction if used instead of itemized deductions. It also adds back the amounts accelerated depreciation exceeds straight-line rates, nonrefundable credits used in determining regular tax such as dependent care, education credits, etc.

Unless Congress acts, after all these add-backs are made to the AGI, a flat $58,000 exemption is subtracted and one of two flat rates, 26 percent or 28 percent, is applied to the balance. When that amount is more than the tax computed the regular way, the difference is added to the regular tax as AMT.

Those with AGIs on the regular tax form topping that $58,000 will need to compute their tax again the AMT even if deductions and credits allow them to owe no regular tax. They're now considered among the "rich" the AMT was designed to ensure paid some tax.

Unless you want to spend literally hours trying to figure out, compute and fill out the AMT form (and still not be sure you're right) you need to buy a computer tax program which does it automatically or have a professional do your taxes. If you file it and owe AMT you didn't compute, be assured Uncle Sam will be coming to collect it, plus penalties and interest. If your regular tax is in the graduated 10, 15 or 25 percent rates, no matter if you are subject to AMT. Your rate will be either 26 or 28 percent with no rate graduation, period.

There are, however, some things you can do by Dec. 28 to cut your regular tax. Some possibly could reduce your AMT exposure. For example, make your house payment by Jan. 8 and the interest portion is deductible this year. Make your charitable contributions so the charities will have them in hand by Dec. 31. Some people needing current year deductions prepay portions of their church pledges so as to deduct them this year.

If you know you won't be subject to AMT and expect to owe more state income tax than withheld, you might consider making an estimated payment for the difference before the end of the year to get the federal deduction this year. If you are subject, the amount will be added back into the federal AGI.

For this year only, you can make charitable contributions out of a regular IRA and it will count against any required mandatory distributions, one way to pay or prepay a charitable pledge. The good thing is the amount won't be taxed. A negative factor is you can't take an itemized charitable deduction since you pay no tax on it. The avoided income tax most would pay on the distribution would have been more than they would have saved from being able to deduct it.

If you need business equipment, you can write off up to its full cost (up to $125,000) this year instead of depreciation it if it's placed in service before year-end. If you're on the cash basis as most small businesses are, all business supplies purchased before year end and expected to be used in the first three months of 2008 such as printer ink, stationery, postage, dues, subscriptions, parts, etc. can be deducted.

Some people are in situations where they can control the timing of when at least some of their income is received. They can delay receipt (to cut AGI) and reduce AGI to next year or try to get it this year. Deductible bills paid by credit card by the end of the year are considered paid this year even though you don't pay the credit card bill until next.

I've found through years as a tax professional and financial planner, some of people's highest-paid time is the time spent keeping good records, reviewing their situations several times a year, considering the tax consequences and acting accordingly. The savings is the same as tax-free income at an hourly rate higher their taxable salary.

Ted Oglesby is retired opinion page editor. His column appears biweekly in The Times and on