Tax Planning Resources: Tax Planning Resources in the Eye of the AMT Storm

By Rose, T. Allen | The National Public Accountant, November 2004 | Go to article overview

Tax Planning Resources: Tax Planning Resources in the Eye of the AMT Storm


Rose, T. Allen, The National Public Accountant


Alternative Minimum Tax (AMT) makes tax planning a required service to perform for clients. Otherwise, taxpayers who are not using a tax professional get to pay more taxes--as if they were rich. After all, once upon a time, the idea behind AMT was to make sure the rich paid some tax. Today, this has changed; all you need is a large family, a state income tax and a few capital gains thrown in. Whether or not the last five years of capital losses and a wicked-bad economy left your clients' Schedule E bleeding red, your clients still get to pay 26-28 percent in taxes.

One area to augment any tax practice is tax planning. There is a growing field of financial planners that only pretend to know taxes, and it is scary. Add to this group those financial advisors whose best advice on tax planning is to buy a front-end loaded annuity from them. The result? You have an idea of the tremendous service accountants and CPAs can provide by using the tax planning function within our tax preparation package or stepping up to dedicated tax planning software.

Tax planning software will display the years selected--side by side with the alternative tax scenario in a spreadsheet-like format. This represents one part of the equation for deploying tax planning; the other is the discipline of tax planning itself. A seasoned tax professional with vast experience in taxes can apply this knowledge to the new changes brought about by the Working Families Tax Relief Act (WFTRA) of 2004 and the American Jobs Creation Act (AJCA), which just passed. Source material for tax planning in this area rests in a large part on general tax reference material. Specific tax planning products (reviewed on pages 25-30) have elaborate documentation to analyze all states and federal income tax obligations.

For further exploration, the serious tax planning aficionado can investigate tax planning books, PPC guides, tax conferences and financial planning software. PPC's Road Map To Individual Tax Planning uses Form 1040 as a tax planning tool as the final step in the tax preparation process, and I couldn't agree more. From the name and address you identify the change of address and marital status of the taxpayer, and factor in the tax implications if they have changed or will be changing in the next few years. The dependent line is replete with tax planning potential. Education IRAs, child care credits, and shifting income to children and kiddie tax planning come to mind.

That much tax planning is done before we come to the income line on the 1040. Here we can suggest optimal salaries from closely held corporations by accelerating one year and reducing in the next to take advantage of the standard deduction in alternating years. …

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