AMT vs HMID

NEW -> Contingent Buyer Assistance Program
Awgee

Thanks for the advice. I'm an S-corp and was advised to purchase my second home through my corporation. I thought it sounded a little suspicious to do so (especially for my profession - I do not see patients in a house). Thanks for confirming my thoughts.
 
Folks who purchase homes with loans of more than $1.1 mil either claim the interest on a loan amount of $1.1 mil or they claim more than the appropriate interest and are not in compliance. Will they get caught? For a few years, it was unlikely. Starting last year, excessive mortgage interest became a hot issue for the IRS and large mort. int. deductions call attention to returns for further review. There was a time when I just told my client the rule and let them tell me how much mortgage interest to deduct, but now I also let them know that I now highly advise that they claim only the appropriate amounts. Penalties and interest are a bummer. And paying me for audit rep is expensive.
 
awgee -- "All schedule A deductions are reduced under high income threshholds, including both mortgage interest and charitable donation."

Isn't this being eliminated w/in the next 3 years? (My bad if you have already answered this question, but I don't think you have.)
 
Laing_Lies - There may be liability and asset protection reasons for holding property in an S corp, but there are no tax advantages.
 
Marty - My experience is that tax code involving the filing of returns changes drastically until Jan 1 of the tax year for which returns are to be filed, and I can not acccurately answer questions based on future changes or peoples perceptions of those changes. Presently, the phaseouts of the limitations on personal exemptions and itemized deductions are scheduled to be reduced, but I can not speak to whether or not that will be true before filings for 2007 begin.
 
I was just asking whether those high income itemized deduction thresholds were slated to be eliminated.

Turns out, at least according to SmartMoney, they are.

http://www.smartmoney.com/taxmatters/index.cfm?story=20010531 (see subheading "Personal-Exemption and Itemized-Deduction Phase Outs on Life Support)

In that case, it seems that having a big mortgage -- one of the last remaining tax shelters -- is probably a good idea for those with high incomes. As long as your long term investments do better than the interest you're paying on your mortgage, it would seem to make the most sense to go all the way up to the $1m limit.
 
Marty - From my experience, I would not make financial plans based on future phaseout reductions until Jan 1. of the year for which the reduction is planned, and I would not make plans for any other reductions until Jan 1 of the year they take effect. But that is just me, what do I know?

And I would never do tax planning based on anything a magazine writes. As I said before, with only a few exceptions, we work strictly from tax code. It is so sad when I get a new client for audit rep who says, "But Smart Money magazine said this was the rule."
 
IR - The rules for applicability of deductions does not change for S corps, partnerships, or LLCs, or LLPs. There is no tax advantage to any of the above entities. They are pure pass throughs for tax purposes. If a deduction is legitimately claimed for an S corp, it is just as legitimate to claim the deduction for a sole propritership.
 
awgee,

NIR - Can you give an example of how to "restructure your income" that will reduce your tax liability?

My 1099- income gets converted to W-2's through a S-Corp.
 
"My 1099- income gets converted to W-2's through a S-Corp."

I have done the same in the past. I have W2 income now, so this technique is not available. When I used it, I saved my on self-employment taxes because I paid myself a salary under the limit SE tax threshold, and it saved me on income taxes because I paid myself some amount in dividends. The advice I got was "don't stick your neck out." The IRS will crack down if you pay yourself entirely in dividends to avoid income taxes or corporate distributions to avoid SE taxes.

awgee,

I hope you don't tell me I may need your services some day
 
NIR:

I'm an S-Corp, also and pay myself with a W-2, also. But, isn't whatever's left after I pay myself in the corporation just pass through now onto my personal income column, anyways?

Now, if I pay myself an amount on the W-2 under the amount that would trigger the AMT, would I be able to avoid it? Or, would the amount added to my W-2 income via my S-Corp flow-through then trigger the AMT?
 
IR - I am unclear. Do you already understand this was an incorrect treatment or did you think that it was a clever way to legally avoid SE?
 
There are so many variables that would or could trigger AMT. That is why it's so frustrating. It's so difficult to try and plan what net benefits buying or upgrading home might provide. You almost have to figure in AMT and if you don't trigger AMT then it's a bonus. I have to use Intuit's turbo tax to do my what-if scenarios to see what effect certain dedcutions, stock option sales, commissions, etc. have on my income taxes.

I'm all for eliminating AMT altogether, although not at the expense of eliminating mortgage interest deduction. At least, change the limits or rules on AMT to adjust it for 2007 not 1970.
 
NIR - Sorry, my last post was directed toward IR, but I accidently addressed it as NIR. Sorry.

SE = self employment, specifically social security and medicare
 
Laing_Lies - If you are using software such as TurboTax, it should list your estimated tax for next year and it should either give you a W4 if you are an employee or four 1040 ESs if you are self employed. And there is no way to legitimately avoid AMT using an S corp.

Bubblegum - It is my experience that any number changing just causes other numbers to change thus incurring the same tax. Sometimes the AMT can be avoided until the next year, but the resultant tax is the same overall.

"My 1099- income gets converted to W-2's through a S-Corp."

NIR - This time I mean NIR. How does having self-employment income converted to W-2's through an S corp save you on taxes? The max SE tax is the same for a W-2 wage earner or a self employed, but the W-2 wage earner is limited on income producing expense deductions.
 
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