Alternative minimum tax pitfalls snare business executives _ the north bay business journal

Chris Paris, partner in charge of the Moss Adams office in Santa Rosa, discussed the alternative minimum tax.

The AMT, launched by Congress in 1969, is a parallel tax system intended to make people with high incomes pay at least a fair minimum tax, even if they had deductions that sharply reduced or even eliminated their taxes under regular filing guidelines.

Under the 2016 AMT, exemption amounts are $53,900 for single taxpayers, $83,800 for married taxpayers who file jointly and $41,900 for married taxpayers who pay separately. Health insurance in california The AMT, which can hit many business owners especially when they sell a business, is calculated on Form 6251 and can result in thousands of dollars of additional taxes. Health insurance underwriting Where does the alternative-minimum tax affect businesses the most?

CHRIS PARIS: The primary area where we see it the most is a lot of business owners hold their business through flow-through entities such as an S corporation or LLC. Health insurance ga All the income that flows through from those entities goes to them personally as the business owner.

The big issue is high state income taxes, such as in California and New York. Home health care kansas city How does the AMT hit business owners subject to high California state taxes?

PARIS: You don’t get the benefit of being able to deduct state income taxes (with the AMT). Health insurance portability and accountability act That’s the major issue we see with business owners. Womens health That kicks them into the AMT?

PARIS: It frequently does, yes. Health insurance brokers With many middle-market clients, the business owners are in AMT because of income flowing through from the business. N j health insurance They don’t get the benefit of deducting state income taxes.

For such folks to avoid the AMT, they need to go back to the underlying business and increase expenses to the business?

PARIS: Exactly. Prime care inc Use advantageous accounting methods. Intermountain healthcare utah Accelerate depreciation deductions. Primary care centre Accelerate prepaid expense deductions. Uk healthcare Defer income to the extent possible. Selective primary health care Closely monitor whether you are going to be in AMT every year. Define primary health care In November or December, run tax projections to determine if you’re in AMT or not.

If the subsequent year is going to have a lot less income or a lot more income where you blow through AMT, defer paying California state income taxes until the subsequent tax year. Cheap health insurance in nc If the business owner is not going to be in AMT, what should s/he do?

PARIS: Pay everything possible in the current year because you’re getting the benefit of the deduction.

PARIS: Yes. Affordable health insurance company Do a Form 6251 and tax projections to monitor whether or not they’re going to be in AMT. Home health care store If they’re not in AMT, they should pay everything.

If they are in AMT, they should delay payment of California state income taxes instead of paying it before year-end. Women’s health group thornton Pay it next year, say on Jan. Home health care salary 1, and reevaluate everything next year. Health insurance agent California state income taxes are the big thing. Private health insurance plans Property taxes are another that you don’t get the benefit of in AMT. The health care Depreciation differences also affect AMT. Cheap health insurance pa AMT does not allow these writeoffs?

PARIS: Exactly. E u health insurance card Does the AMT hit a lot more taxpayers now than it was intended for?

PARIS: Absolutely. Health insurance estimate The idea behind the alternative minimum tax is for certain taxpayers who are taking all these deductions and they have a bunch of tax-exempt income, but not exempt from AMT, we’re going to make those folks pay some sort of minimal tax amount so they can’t avoid paying income tax altogether. Healthcare inc A lot of provisions in AMT haven’t been indexed for inflation.

You have this old system with a bunch of numbers that aren’t relevant in today’s dollars. Women’s health magazine customer service Every year they talk about whether it’s going to be repealed. Health care center It snags more people every year. Private health insurance quotes It’s very common for middle-market business owners to be in AMT. Women’s health associates columbia mo It’s well beyond its intended purpose in terms of the number of taxpayers now subject to AMT.

With Trump and his desire to reform taxes significantly, this is one of the things on the table. Health care premium I wouldn’t be surprised if it’s eliminated. Health insurance help Toward the end of 2017 we’ll have a much better idea how the AMT is going to affect everybody going forward. Healthcare journal The typical income bracket at which the AMT kicks in is about $300,000 and above?

PARIS: That’s about right, $300,000 to $1.5 million. Comprehensive health care Then you start to blow through AMT, where your ordinary income-tax rate is higher than the alternative minimum tax. Health care definition A very large percentage of our clients who have income between $300,000 and $1 million end up in AMT.

For people who have stock options as part of their compensation, is it common that the AMT kicks in when they exercise those options?

PARIS: It is. Home health care business Incentive stock options are popular with startup tech companies. Home health care products They have a strike price, and the value of the stock theoretically increases. Inexpensive health insurance When the employee buys that stock at a lower strike price (exercises the option), on the regular income side, it’s a non-event. Health insurance prices Let’s say the strike price is $100 (a share) and now it’s worth $200. Bureau of primary health care When you buy it for $100 for regular income-tax purposes, you have no issue. Home healthcare solutions As long as you still hold it and don’t sell the stock?

PARIS: As long as you’re still holding it. Women’s health group morganton nc For AMT, when you exercise it, you have $100 of AMT income. Health insurance tx Whether you realize that gain or not?

PARIS: Even if you still hold the stock and haven’t sold it. Health care benefits That’s exactly right. Women’s health issues For a lot of stock options, they will do same-day exercise and sell for that reason. Health Then you don’t have to deal with the complexities associated with the AMT income recognition.

But a lot of higher-level executives don’t do that, especially if they have been at tech companies for a long time and have many different buckets of stock options. Affordable health insurance nj They end up with a lot of differences on the income-recognition side in the AMT world in comparison to the regular-tax world. Health insurance ohio Are most executive stock options annual?

PARIS: Usually it’s annually and they vest, as part of their overall compensation. Health care informatics The vesting component is usually four to five years. Health insurance domestic partner As they become vested, they’ll exercise those and move on to the next bucket. Advocate health care It works well in retention. Women’s health consultants As those options accumulate, they end up with a huge potential tax liability?

In those situations, your recommendation is to exercise the options then sell immediately so the difference between strike price and market price is a realizable gain?

Many employers are well versed in this stuff and tell the employee if they exercise the options and hang on to the stock, they’re going to have AMT income but it doesn’t affect you tax-wise or things get more complicated. Health insurance for dummies Or you could just do the same-day exercises and sell, then they include it in W-2 wages.

From a reporting perspective, it makes life a lot easier. Medical health care We see a lot of clients opt for that, usually when they have a lot of options earlier on and haven’t been at the company a long time and have all these different buckets of options with different strike prices. Health care policy Longer-term executives already realize that this complexity is part of their lives.

In some situations if the AMT is paid, can there be a minimum-tax credit in subsequent years?

PARIS: That is correct. Healthcare There’s an AMT tax credit. Cheap health insurance australia If you can’t use it, you get to carry it forward. Health insurance for international students The idea is to make you whole. Primary medical care If you pay a minimum tax and then in a different year you have a different result, you get a credit for taxes you previously paid.

We don’t have many clients who are able to take advantage of minimum-tax-credit carry-forwards because of how the credit works. Health insurance out of pocket It’s there, but in reality doesn’t apply that frequently. Affordable health insurance quotes In what industries does the AMT hit business owners the most?

PARIS: It’s less about industry and more about income levels. Health insurance hmo For industries that have steady, recurring profitable income streams, it (AMT) affects business owners.

For other businesses that are more cyclical, such as real estate, with huge fluctuations in income, they’re less inclined to get hit with AMT. Women’s health associates of southern nevada If you sell an asset in one year and then not the next, you may have AMT in one year but not the next.

PARIS: Exactly. Health insurance waiver form For occasional high-earners, in the year when they are a high earner, one of two things happens. Illinois primary health care association If they become a high earner but don’t blow through AMT, they have AMT that year but not again.

Or they have AMT but then have a huge income year because they sold big assets at a big gain, then they blow through AMT in that year and then go back to it. Health care articles Ones that have cyclical profitability tend to move in and out of AMT depending on the year. Home health care workers What is the general AMT tax rate?

PARIS: It’s a flat income-tax rate, unlike regular-tax graduated rates. I need health insurance now It’s either 26 percent or 28 percent.

If a business owner is facing an AMT, are there things that owner can do beforehand so they are less subject to that tax?

PARIS: You are kind of snared by it. Women’s health yuma The main thing you can control in AMT is tax-related payments, whether it’s state income taxes or property taxes. Healthcare advisory board The other thing you can closely monitor is the timing of asset sales or portfolio sales. Health insurance houston tx If you are going to have significant capital-gain income, you can largely control that from a timing perspective. List of health insurance companies in india Sell a stock portfolio or real estate this year or next year, for example. B c women’s health centre If you’re going to be subject to AMT, you would defer those kinds of asset sales?

PARIS: Exactly. I care health Or spread them out across multiple years. What is health care You can manage your AMT by the timing of your asset sales. Healthcare website There are also different accounting methods you can adopt that are advantageous for AMT purposes, but those are less applicable to all industries. Health insurance for dogs When a small-business owner sells the entire business, that often triggers the AMT?

PARIS: Yes. Affordable health insurance ct It frequently triggers the AMT. Health insurance germany They may have an income stream where they’re falling below the AMT level then they sell their business and get pushed into the AMT.

On a lot of business sales, there’s contingent consideration where it’s an earn-out. Cheap health insurance ohio The buyer of the business pays the seller X, but part of it is held back. Health insurance companies The business has to retain key employees, has to maintain certain revenue levels, profitability levels or customer bases. What is primary health Then the buyer pays the rest of the selling price.

You can plan for AMT a little bit there by negotiating the hold-back amount.

Holding back could actually benefit the business owner and get him or her out of AMT for a year or two?

PARIS: You could, yes. Womens health care If you spread the income out over a longer period of time (AMT could be avoided). Cheap health care insurance The business owner who sells could do the same with a covenant not to compete?

PARIS: Most of our clients are selling for $3 million to hundreds of millions. Ehealthinsurance A lot fall in the $10 million to $50 million range. Women’s health recipes On the higher end of that, you are likely going to blow through AMT.

On the lower end, if there’s an earn-out, there’s a high likelihood you’re going to be in AMT. Health insurance japan If a sale is coming, we have a good idea of the amount of cash coming. Affordable health insurance sc We might have them prepay all their state income taxes or pay up to a certain level.

If they pay beyond that, they get no benefit from an AMT perspective. Health care products Then we have them pay the rest next year. Private health insurance ny We try to match payment of state income taxes with income coming in from the business sale. Women’s health uk You’ll do that late in the year before the business sale?

PARIS: Yes. I select health insurance We’ll run projections on the business sale. Women’s health 2016 Of your total client base in the North Bay, what portion are subject to the AMT?

PARIS: Probably 25 to 30 percent. Cheap health insurance for college students We are dealing with this all the time.

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