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How to Cut Your Alternative Minimum Tax

1.

Put more away for retirement. Increase the amount taken out of your income for retirement programs like 401(k) or 403(b). This reduces your taxable income, which in turn, may bring you below the alternative minimum tax threshold.

2.

Sign up for a cafeteria insurance plan, which allows an employee to choose where his or her benefit dollars will be spent, if offered by your employer. If your employer plan allows you to set aside pre-tax income to pay for your health expenses during the year, it will reduce your adjusted gross income in the same way retirement plan deductions do.

3.

Deduct your self-employed business expenses on Schedule C rather than as a Schedule A deduction. This action not only reduces your adjusted gross income, but even if the alternative minimum tax kicks in, you will still be able to deduct the expenses.

4.

Take the home-office deduction if you are self-employed. The deduction will reduce your self-employment income and your adjusted gross income. It also moves some of your mortgage interest from a Schedule A deduction, where it is not counted when calculating the alternative minimum tax, to your Schedule C, where it can still help you reduce your taxes.

5.

Consider moving some of your portfolio into tax-exempt bonds or tax-efficient mutual funds. This will decrease you adjusted gross income, making it less likely that you will have to pay the alternative minimum tax.



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