What Causes Alternative Minimum Tax Liability?
Tax-Exempt Interest
Interest that is exempt from the regular income tax may or may not be exempt from the AMT. It depends on complicated rules that are fully understood only by bond lawyers. Bonds that are not exempt from AMT pay a slightly higher rate of interest to compensate for the fact that they are not fully tax-exempt. If you invest in bonds that are not exempt under the alternative minimum tax, you are a candidate for AMT liability.
Tax Shelters
The Tax Reform Act of 1986 severely curtailed the ability to reduce income tax through tax shelters. Yet there are still some legitimate ways of reducing tax liability through investments in certain types of partnership or limited liability company arrangements involving such activities as oil and gas drilling. The AMT provides reduced tax benefits for these activities. You should always explore the alternative minimum tax consequences (among other things) before investing in a tax shelter.
Contact H&M to discuss how AMT affects you
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