With all the negative publicity received by the AMT, it is helpful to note there is a sweet spot for certain high income taxpayers. It is obviously an unintentional gift from Congress. Knowing that it exists is the first step toward taking advantage of it.
Forbes published an easy to read blog post detailing the whereabouts of the sweet spot and how to take advantage of it. Cutting to the chase, the sweet spot begins, for married couples filing jointly, at $447,800 of AMT taxable income. At this point, the AMT effective marginal tax rate drops from 35% to 28%. This is a tax planning opportunity that is best investigated with tax planning software such as BNA Income Tax Planner. The sweet spot will vary in size depending upon the taxpayer's AMT adjustments and preferences. These items are shown on Form 6251.
The example used by Forbes is a married couple with no kids whose itemized state, local, and real estate taxes tally $60,000. The AMT sweet spot in this case stretches from $447,800 to $680,400. From $447,800 to $680,400 the taxpayer is taxed at 28% on the margin instead of 35%. A sweet deal, if one can take advantage of it.
Taking advantage of the sweet spot requires the ability to generate additional ordinary income that will be taxed at the 28% rate, but stop right at the point above which the taxpayer returns to the 35% marginal tax rate. Some ideas to generate this income are ROTH IRA conversions, exercising stock options, accelerating income into the current year or defer expenses to the following year if one has control of business income.
Forbes: The Alternative Minimum Tax Sweet Spot
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