Alternative Minimum Tax Planning - Importance of Controlling Your Income Small Business Owners & the
By: kinal | Posted: 18th June 2009
The degree of control that small business owners and the self-employed have over the timing is much greater than that of employees, and also depends on the structure of their businesses. For example, if a person is small business owner, and thus self-employed, without having formed a legal entity (there would be a Schedule C in your tax return), then the control over the timing of income is based on the business cycle - i.e., providing services or selling goods, and then billing and collecting from customers. For example, delaying year-end billing can shift income from the current year to next year.
Also, incurring and paying the necessary business expenses is controllable, at least to some degree. For example, the use of outside consultants can sometimes be delayed until the following year, unless it is something critical to the current business operations. Note also that certain types of expenses from the business - depreciation, for example, can in and of themselves have an AMT impact. The tax law requires that different methods of depreciation be used for the Regular Tax and for the AMT, but, also, you are given a choice depreciation method to use. This selection of depreciation methods can have a direct impact on your AMT.
If the business is in a legal entity that is a "pass-through" entity (LLC, partnership, Scorporation), then the same principles mentioned in the preceding paragraph apply. Because the net income from the business passes through to the individual for tax purposes, the billing and collecting from customers and incurring and paying expenses will similarly be reflected directly in the taxpayer's return. Note also that AMT items that are incurred by pass-through entities are reported directly on the individual member's partner's or shareholder's tax returns. These items are shown separately on the K-1 received from the entity.
If a business is incorporated without an S election having been made, or if it is an LLC that has elected to be treated as a corporation for tax purposes, then any Alternative Minimum Tax items do not pass through, but instead are taken into account by the entity itself as its taxes are computed. In this case, income planning for the shareholder or member centers around the cash taken out of the business. This can be in the form of a salary, a bonus, a dividend, or all of these and the AMT effect of each would be as discussed above.
George Bauernfeind is with AMT Individual - providing information on Alternative Minimum Tax Planning . He writes articles to help the tax payers to pay less Alternative Minimum Tax. He recommend to use Alternative Minimum Tax Calculator to reduce Alternative Minimum Tax.This article is free for republishing
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