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Our news articles are posted on a regular basis to give our clients relevant and timely information about matters pertaining to our financial services. Browse through our current and archived articles to learn more.

Category: Personal Accounting

Accounting & Tax :: A Possible Threat to Municipal Bond Interest Tax Exemption

Municipal bonds have long been an appealing investment option for high net worth individuals. This has been the case, not only because they provide relatively safe and stable income for investors due to their much lower levels of defaults versus corporate bonds, but also because of their tax-exempt status.


As the federal government’s budget deficit has increased, both parties have been seeking ways to reduce spending and the municipal bond tax exemption is often an item lawmakers target. The 2010 Simpson-Bowles Deficit Reduction Commission recommended to President Obama that the tax code be changed to eliminate the municipal bond tax exemption. In addition, the Obama Administration has recently proposed to tax a portion of tax-exempt interest by capping the tax rate at 28% for high-income earners. The 28% cap would likely apply to bonds that have been already purchased by investors.


Many financial experts believe that any substantial change in municipal bond tax exemptions would decrease demand for municipal bonds and make financing for state and local government more expensive. Removing or limiting the tax exemption would make tax-exempt bonds less attractive compared to other investment options. States and localities would have to raise interest rates to make their bonds more attractive to investor. According to analysis performed by the Securities Industry and Financial Markets Association (or SIFMA), it is estimated that it would have cost state and local governments an additional $173 billion of interest on infrastructure investments if the municipal bond tax exemption limit was implemented from 2003-2012. These additional costs would have resulted in higher taxes or user fees.


Individual investors own about 75% of the nearly $3.7 trillion municipal bond market. A cap or elimination of the tax-exempt status of municipal bond interest would significantly affect high net worth individuals’ investments. And at the same time, higher bond costs would impact state and local governments and other municipal issuers’ budgets, and directly affect taxpayers in the form of higher taxes and user fees.

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All Legal Same-Sex Marriages Will Be Recognized for Federal Tax Purposes

One of the last impediments to joint tax reporting for same-sex married couples was removed with the recent ruling by the U.S. Treasury Department and the Internal Revenue Service. The federal government now recognizes same-sex marriages for federal tax purposes, regardless of the taxpayers’ state of residence, so long as the marriage was valid where performed (U.S. States or foreign countries where same-sex marriage is legal).


The implications of this ruling are significant for both estate and tax planning. Legally married same-sex couples are now able to consider their tax and estate planning needs without concern for differentiated treatment under federal tax law.

This ruling is for tax purposes only. It does not address the definition of marriage by other federal agencies, such as Social Security, which looks to whether the couple’s marriage is recognized by their state of residence. It also does not address whether the IRS will implement any expedited procedures for filing amended tax returns for same-sex married couples. The IRS has indicated there will be additional guidance in the next month.


The following is the press release from the U.S. Department of the Treasury:


August 29, 2013

WASHINGTON – The U.S. Department of the Treasury and the Internal Revenue Service (IRS) today ruled that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage.


The ruling implements federal tax aspects of the June 26th Supreme Court decision invalidating a key provision of the 1996 Defense of Marriage Act.


“Today’s ruling provides certainty and clear, coherent tax filing guidance for all legally married same-sex couples nationwide. It provides access to benefits, responsibilities and protections under federal tax law that all Americans deserve,” said Secretary Jacob J. Lew. “This ruling also assures legally married same-sex couples that they can move freely throughout the country knowing that their federal filing status will not change.”


Under the ruling, same sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes. The ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA, and claiming the earned income tax credit or child tax credit.


Any same-sex marriage legally entered into in one of the 50 states, the District of Columbia, a U.S. territory, or a foreign country will be covered by the ruling. However, the ruling does not apply to registered domestic partnerships, civil unions, or similar formal relationships recognized under state law.


Legally-married same-sex couples generally must file their 2013 federal income tax return using either the “married filing jointly” or “married filing separately” filing status.

Individuals who were in same-sex marriages may, but are not required to, file original or amended returns choosing to be treated as married for federal tax purposes for one or more prior tax years still open under the statute of limitations.


Generally, the statute of limitations for filing a refund claim is three years from the date the return was filed or two years from the date the tax was paid, whichever is later. As a result, refund claims can still be filed for tax years 2010, 2011, and 2012. Some taxpayers may have special circumstances (such as signing an agreement with the IRS to keep the statute of limitations open) that permit them to file refund claims for tax years 2009 and earlier.


Additionally, employees who purchased same-sex spouse health insurance coverage from their employers on an after-tax basis may treat the amounts paid for that coverage as pre-tax and excludable from income.

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Commercial Insurance :: As Hurricane Seasons Worsen in Severity, the Need for Preparedness Increases

The National Ocean and Atmospheric Administration updates its outlook for Atlantic hurricane season every year. In recent years, hurricane season has brought more powerful storms, and experts predict the strength and frequency of hurricanes in future seasons to worsen even more. The peak of the season is from the middle of August through the month of October. However, the entire season spans from the beginning of June through the end of November.

 When experts predict the season to be above normal for activity levels, this means oceanic and atmospheric conditions are favorable for the development of storms. Experts also noted that during some of the most active years in history, storms were noted early on in the season in the deeper area of the tropical Atlantic. This is considered an indicator of an active hurricane season.


Experts stress the importance of all people being prepared for hurricane season before it arrives. Since some seasons are harsher than others, they also recommend that people read predictions every year to know what to expect. One of the most important steps for every person and especially families to take is to review an individual emergency plan. People who do not have these in place should develop one.


The experts use past weather conditions to predict current ones. When the sea temperatures are above normal and there is a rainy season in West Africa, the wind patterns from African storms contribute to creating tropical storms and hurricanes in the Atlantic Ocean. When it is likely that La Niña will develop, it is more likely to be a severe hurricane season. La Niña is known for bringing a reduced wind shear with it, which only fuels hurricanes. 

In early 2013, experts at NOAA predicted a 70 percent chance of an above-normal hurricane season. From June through August, they predicted between 13 and 19 named storms and between six and nine hurricanes. Of those hurricanes, they predicted that between three and five could become major hurricanes. Those predictions show ranges that are above the 30-year annual average of 12 named storms, three major hurricanes and six total hurricanes. 

Experts stress the importance of all people being prepared for hurricane season before it arrives. Since some seasons are harsher than others, they also recommend that people read predictions every year to know what to expect. One of the most important steps for every person and especially families to take is to review an individual emergency plan. People who do not have these in place should develop one. Experts also recommend checking emergency supplies and restocking them before hurricane season starts. Bottled water, canned foods, flashlights, extra medications and first aid supplies are important to keep.


Another essential step is to review insurance coverage. It is important to understand what a policy covers and excludes, and people who have purchased specific valuables since last year should make sure those items are properly insured. Some items need special riders or policies, so do not wait until next hurricane season to review a policy.

To learn more about obtaining adequate insurance coverage, contact G.R. Reid Insurance.

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Accounting & Tax :: Potential Tax Return Audit Red Flags-What They Are and How to Avoid Them

Millions of individuals file tax returns but only a small percentage of those returns are examined by the IRS or other taxing authorities. While there should be little reason to worry about an IRS examination, there are a few things that may lead to an increased chance of examination:


High Income Earners

The overall audit rate for individuals found during an IRS study conducted in 2012 is 1.03%. The individual audit rate for taxpayers making $200,000 or more is 3.70% or 1 out of every 27 returns. Make over $1,000,000? The rate jumps to 1-in-8 returns. The more income reflected on your tax return, the more likely it will be for you to have an IRS examination.


Failing to report taxable income

The IRS receives copies of all W-2 and 1099 forms. If your return is missing income that was reported to the IRS on a W-2 or 1099, it is likely that you will automatically receive a notice requesting an explanation.


Charitable deductions

If charitable deductions reported on a return are disproportionately large compared to income, the IRS is likely to investigate. Therefore, it is important to keep all charitable donation receipts. Audit exposure also exists if valuable property is donated without appraisals, or if Form 8283 is not filed when a property donation over $500 is made and the deduction is claimed.


Home office deductions

The home office deduction consists of a portion of rent, mortgage interest, real estate tax payments, insurance, utilities, phone bills and other costs allocated proportionately to an area of an individual’s home used regularly and exclusively for business purposes. The space used to claim the home office deduction cannot also be used as a guest bedroom or play room, nor can the office computer be sometimes used for homework. Therein lays the difficulty in substantiating the deduction. The IRS is aware of the difficulty a taxpayer may have in substantiating a home office deduction and is often successful in knocking down the deduction in part or all together during an audit. (The IRS recently issued new non substantiation guidelines on this deduction, but the amounts are very low.)


Rental Losses

In general, most real estate losses are not currently recognized and are suspended until such time as the taxpayer can recognize real estate rental income. This is known as the passive loss rule. If a taxpayer actively participates in the rental real estate property, an up to $25,000 of losses could be available to offset income, however the deduction begins to fade out as individual’s income reaches $100,000, and is completely phased out at $150,000. Real estate losses are fully deductible for those individuals who are deemed to be real estate professionals. In order to be considered a real estate professional you must spend more than 50% of your working hours and at least 750 hours a year participating in real estate as a developer, broker or landlord. The IRS may pull your return for review to substantiate the claim of real estate professional, especially if your day job is not in real estate.


Deducting business meals, travel and entertainment

Historically, self-employed individuals understate income and overstate deductions. Large deductions for travel, meals and entertainment, especially when compared to income, can cause a closer look from an IRS agent.


100% business vehicle use

Similar to the home office deduction, which requires regular and exclusive use of an area for business use, it is difficult to maintain that a vehicle is used for business and only business purposes. If you are going to be claiming a 100% business vehicle deduction, be sure to maintain detailed mileage logs including details of where and when you went on each trip.


Writing off hobby losses

If you have wage income in addition to large Schedule C losses, there is a high chance your return will be pulled for inspection. Horse breeding and car racing are two such hobbies moonlighting as businesses that can cause scrutiny from an IRS agent. In order for a business to be considered legitimate by the IRS, it must be entered into with the intention of making a profit. If your business reflects profits for 3 out of 5 years (2 out of 7 for horse breeding) it is generally considered a legitimate business intended to make money. If you are audited, you will have to prove you have a legitimate business and not a hobby. Make sure you can support for all expenses.


Running a cash business

Small business owners in cash intensive industries such as taxi drivers, car washes, bars, hair salons and restaurants have historically been a target for IRS examination. Agents are aware that when a good portion of revenue is cash based, there is an opportunity for a taxpayer to underreport income as there is no trail (ie. credit card receipts.)


Failing to report a foreign bank account:

In recent years, there has been greater IRS interest in taxpayers with offshore bank accounts or signature authority, specifically in tax haven countries. In the past, the IRS has set up programs for taxpayers to come forward with previously undisclosed accounts with the incentive of reduced penalties for not reporting sooner, as failure to report a foreign bank account leads to significant penalties.


Engaging in currency transactions

The IRS receives reports of cash transactions in excess of $10,000 involving banks, casinos, car dealerships and other businesses. Banks and other institutions also file reports on suspicious activities such as $9,000 deposits several days in a row. These currency transactions are known to lead to undisclosed income, creating a greater risk of audit examination for those engaging in them.


Taking higher-than-average deductions

If you have deductions that are disproportionately large compared to your income, your return has a higher chance of being reviewed.
While the areas outlined above do present items that will provide greater audit exposure, if you have proper documentation, there should be nothing to worry about in the case of an IRS examination.

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Safeguarding Tax Records During Hurricane Season

Each year on the East Coast of the United States, an intense cycle of storms roll through the Atlantic, in a period commonly known as “Hurricane Season.” These natural disasters can occur anytime during the months of June to November when hurricane season is upon us. While memories of Hurricane Irene and Superstorm Sandy are still clear in our minds, it’s too early to know what is in store for 2013. 

But, if we have learned anything from the past,
it’s that we need to be proactive
in our emergency planning efforts and
one of the most important ways we can do this
is by the safeguarding of our
financial assets and tax documentation.

In order to understand the importance of safeguarding tax documentation, it is important to first understand the importance of recordkeeping in general. One of the most financially beneficial things you can do is keep adequate financial records. Keeping adequate records helps to monitor the progress of your business or personal financial situation, and can be useful when it comes to important decision making. It also helps in the preparation of yearly tax returns. With adequate documentation you can identify sources of income, separate what is taxable from what isn’t, and determine which expenses are deductible. Finally, it supports the information on your tax return, should the IRS choose to conduct an audit. The IRS does not require you to keep your records in a particular way, and different systems are suited for different people or businesses. However, these records should always include a summary of business transactions or checkbook activity, and all supporting documentation that may be needed to back up these transactions.

The IRS describes three ways in which we can safeguard our tax documents and prepare ourselves for the upcoming hurricane season.

First, they encourage the electronic back up of all documentation. This includes your previously filed tax returns and all supporting workpapers. If you already file tax returns electronically, save a PDF copy to an external hard drive or flash drive. Another great way to back up these files is to send yourself a copy via email, so you can remotely access it. If you manually process or paper file your tax returns, scan them in and make sure to have a copy saved in PDF form that you can back them up the same way. In addition to your previously filed tax returns, you should keep supporting documentation such as bank statements, brokerage statements, homeowner’s expenses, retirement contributions, and credit statements. Many of these records are already stored online and can be found on the website of your bank or broker. However, you can make your own digital back up of these, in addition to other records that may not readily be available online, such as receipts for equipment and other major purchases or expenses. Any back up or extra set of electronic records should be kept in a safe place separated from the originals.

Another way the IRS encourages the safeguarding of records during hurricane season is the documentation of assets, with an emphasis on higher value items. This could be as easy as taking photographs or videotapes of your home and as difficult as documenting it in list form. The IRS has released Publication 584, which is a workbook that is designed to help you determine what you have or what you’ve lost when it comes to your personal-use property. It allows you to list personal-use property from each room and determine what you have prior to a hurricane and then what you may have lost in the event of a hurricane. Another great resource can be found on the Insurance Information Institute’s website This site allows you to create an online inventory of your possessions and list the value of each item. When documenting your valuables online or electronically, it is important to store the list or photos outside of the home and, either send them to yourself via email or put them on an external hard drive in a safe location separate from the valuables themselves.

In addition to electronically backing up your information and documenting your valuables, it is strongly suggested that you

• Update your emergency plan annually before each hurricane season. Each year our businesses and personal lives may change. It is important to continually update your emergency plan to correspond with these changes. Emergency plans should be reviewed each year prior the start of hurricane season and changed accordingly.

Finally, the IRS has many resources available to both prepare for a hurricane and recover from one. You can always contact the IRS and order transcripts online or request previously filed returns by filing form 4506. In addition, the IRS is constantly releasing publications that provide further information on how to report casualty losses, keep adequate records, or inquire about what tax relief is being provided for victims of natural disasters.

Living on the East Coast and experiencing hurricane season each year certainly has its risks. It is important to understand the risks associated with losing all of your financial documentation. All of the documentation you would need for insurance and recovery purposes should be easily obtainable in the aftermath of a natural disaster. Safeguarding your financial information should be part of your overall emergency plan, and you can use the tips discussed above to hope for the best but prepare for the worst.

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Accounting & Tax :: IRS Reminds Those with Foreign Assets of Their U.S. Tax Obligations

The Internal Revenue Service is reminding U.S. citizens, resident aliens, and those with dual citizenship who have lived or worked abroad during all or part of 2012 that they may have U.S. tax liability and filing requirements in 2013. With the possibility of large penalties for failure to comply, it is important to know the foreign asset filing requirements.

U.S. citizens and resident aliens are required to report all worldwide income, including income from foreign trusts and foreign bank and securities accounts. Affected taxpayers need to fill out Part III, Foreign Accounts and Trusts, of Schedule B, Interest and Ordinary Dividends. This section asks about the existence of foreign accounts, such as bank and securities accounts, and requires U.S. citizens to report the country in which the account is located.

Certain taxpayers may also have to fill out and attach to their return Form 8938, Statement of Foreign Financial Assets. U.S. citizens, resident aliens, and certain nonresident aliens who have an interest in specified foreign financial assets where the value of those assets is more than the applicable reporting threshold must file this form. If you are required to file this form, you must report the specified foreign financial assets in which you have an interest, even if none of the assets affects the tax liability for the year. Instructions for Form 8938 explain the thresholds for reporting, what constitutes a specified foreign financial asset, how to determine the total value of relevant assets, what assets are exempted and what information must be provided. If applicable, Form 8938 is due with your individual income tax return. An extension to file the tax return is also applied to the filing of Form 8938.

Taxpayers that have a financial interest in or signature authority over foreign financial accounts must file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, if the aggregate value of the foreign financial accounts exceeded $10,000 at any time during 2012. This is not a tax form and is due to the Treasury Department by June 30, 2013. There is no extension of time to file this form.

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Accounting & Tax :: Employees May Be Eligible for Retirement Savings Tax Credit

It’s not too early to start planning for the 2013 tax year. Employees who make eligible contributions to an employer-sponsored retirement plan, such as a 401(k), or to an individual retirement arrangement (IRA) may be eligible for a tax credit. Below are five guidelines that can help employees learn more about the Saver’s Credit.


1. Credit Amount. The credit reduces income tax owed. Employees may be able to take a credit of up to $2,000 (for married couples filing jointly) or $1,000 for single taxpayers. The lower an employee’s income, the higher the credit rate.

2. Income Limits. Eligibility for the credit depends on an employee’s income and filing status. For 2012 tax returns, the credit applies to employees with a filing status and income of:

  • Single or married filing separately, with income up to $28,750
  • Head of household, with income up to $43,125
  • Married filing jointly, with income up to $57,500

3. Eligibility Requirements. An employee must be at least 18 years of age to be eligible for the credit. In addition, the employee cannot have been a full-time student in 2012, nor claimed as a dependent on someone else’s tax return.

4. Deadline for Contributions. Contributions to a qualified retirement plan must be made by the due date of an employee’s tax return in order to claim the credit. The due date for most people is April 15th.

5. Other Tax Benefits. The credit is in addition to other tax benefits which may result from the retirement contributions. For example, an employee may be able to deduct all or part of his or her contributions to a traditional IRA. Contributions to a regular 401(k) plan are not subject to income tax until withdrawn from the plan.


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Last Minute 2012 Individual Tax Filing News

The due date for 2012 individual federal income tax returns is April 15, 2013. If you are not able to file your federal income tax return by the due date, filing an extension gives you an additional six months–to October 15, 2013–to file your return. However, the extension does not give you extra time to pay any taxes due. If you do not pay any taxes you owe by April 15, 2013, you will owe interest on the tax due, and you may also owe penalties. Special rules apply if you’re living outside the US or serving in the military outside the country on April 15, 2013.



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Accounting & Tax :: Residential Energy Credits Are Back

gr-eNews-houseThe tax credit for energy improvements to existing homes was first established for purchases made in 2006 and 2007, with a cap of $500. Energy credits were not available in 2008, but they were reinstated for purchases made from 2009 through 2011. The cap was increased in 2010 to $1,500 and later reduced to its original amount of $500 in 2011.

The tax credit was unavailable for purchases in 2012 until the American Taxpayer Relief Act of 2012 was passed this January. This Act retroactively renewed this tax credit effective for purchases made during 2012 and 2013.

There are two types of energy type credits available for individuals who make energy improvements to their homes:

  • Non-Business Energy Property Credit covers physical improvements such as insulation, doors, windows, heaters and air conditioners. To claim the non-business energy property credit, the improvements must be made to your main home. The tax credit equals 10 percent of the costs subject to stated limits ranging from $50 to $300 depending on the improvement. Eligible costs include the purchase price and installation charges for efficient heating and air conditioning systems, water heaters and stoves that run on biomass fuel. The credit claimed for the purchase of doors, windows, skylights, insulation and certain roofs excludes the installation costs. There is a maximum credit limit of $500, of which a $200 maximum can be applied for windows. The $500 credit limit must be reduced by amounts that were utilized in 2006 through 2011.
  • Residential Energy-Efficient Property Credit covers investments in alternative energy, such as solar, wind, geothermal and fuel cells. The allowable credit is 30 percent of qualifying improvement costs. The credit for fuels cells cannot exceed $500 for each .5 kilowatt generated. With the exception for certain fuel cells, this tax credit is available for improvements made to either a principal residence or vacation home. (The fuel cell must be installed on your main home in order to claim the credit.)

Individuals should make sure that any improvements undertaken in 2013 meet energy efficiency specifications. Most of the standards are discussed within Most of these improvements must have an Energy Star rating in addition to other standards set by the International Energy Conservation Code (IECC).

Most manufacturers will have the information readily available on their websites as to credit qualifications. Individuals who made improvements in 2012 should evaluate whether or not the purchases qualify for the tax credits.

The Non-Business Energy Property Credit can be claimed on Part II of Form 5695 while the Residential Energy-Efficient Property Credit is claimed on Part I of Form 5695. The Form 5695 must be attached to Form 1040 for the tax year the expenses were paid or incurred.

Claiming either of these tax credits requires a reduction in the tax basis of your home by an amount equal to the total of credits claimed. However, since the law excludes up to $250,000 ($500,000 for couples filing joint) of gain from the sale of a home, the basis reduction shouldn’t have any major tax consequences.


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Accounting & Tax :: AMT Implications of the Fiscal Cliff Deal


Business morning with coffe, glasses and reportFor years, there has been much confusion and concern surrounding the Alternative Minimum Tax (“AMT”). This has been largely due to the disparity between those who have been subject to the tax, and the original intent of the law. The overarching problem is that the AMT tax calculation has never been permanently indexed for inflation, and as wages have increased over time, millions of middle-income taxpayers have been unwittingly ensnarled by the tax. However, the American Taxpayer Relief Act of 2012 remedies this problem.

To define, AMT is the excess, if any, of the tentative minimum tax for the year over the regular tax for the year. The tentative minimum tax is calculated by taking one’s taxable income, modifying it using adjustments (e.g., adding back certain itemized deductions), and then subtracting an exemption amount (which phases out at higher income levels). The result is alternative minimum taxable income (AMTI), which is then multiplied by an AMT rate of 26% or 28%.

When Congress established the AMT in 1969, the original purpose of the AMT was to ensure that affluent taxpayers, who overly benefited from various income exclusions, deductions and credits, pay at least a minimum amount of tax. Since the tax was imposed by the federal government, it had never been permanently indexed for inflation.

Intermittently over the past several decades, Congress has developed temporary solutions in the form of AMT “patches,” which are the income exemption amounts used to reduce AMTI. In spite of these temporary “patches,” many felt that these weren’t really a solution at all. The AMT had seemed to progressively deviate from its original intent, as it subjected an increasingly large number of middle-class income taxpayers to the minimum tax (versus affluent taxpayers, for whom the tax was originally intended). However, on January 1, 2013, The American Taxpayer Relief Act of 2012 includes provisions that should alleviate concerns about AMT.

The Act contains two key provisions that provide AMT relief for individual taxpayers, retroactively effective for tax years beginning after 12/31/2011. The first delineates that the AMT exemption amounts have been permanently increased, and indexed for inflation. The exemption amounts vary depending on filing status, and are as follows:

  • Married Filing Jointly or Qualifying Widow(er) with Dependent Child: $78,750, less 25% ofAMTI exceeding $150,000 (zero exemption when AMTI is $465,000, or greater)
  • Single or Head of Household: $50,600, less 25% of AMTI exceeding $112,500 (zero exemption when AMTI is $314,900, or greater)
  • Married Filing Separately: $39,375, less 25% of AMTI exceeding $75,000 (zero exemption when AMTI is $232,500, or greater). But AMTI is increased by the lesser of $39,375 or 25% of the excess of AMTI (without the exemption reduction) over $232,500.

The second key provision provides that nonrefundable personal tax credits may be used to offset both AMT and regular tax liability (e.g. child tax credit, residential energy credit, etc.). Previously, these tax credits were not able to offset tax liability if the taxpayer was in AMT, resulting in the credits being carried forward in perpetuity, and thus giving no benefit to the taxpayer.

These tax provisions included within The American Taxpayer Relief Act of 2012 will relieve millions of taxpayers from AMT, particularly those within the middle class, by either reducing or eliminating the tax altogether, and simultaneously refocus the tax back on affluent taxpayers. From a tax planning standpoint, it is important for taxpayers who anticipate remaining in AMT to consider avoiding items that aren’t exempt/deductible for AMT purposes (e.g. investments in private activity bonds, prepayment of real estate, state and local taxes, etc.)


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