Depending on where you get your information you may or may not be convinced that Social Security will be around for much longer.

• There are many myths about Social Security that people take for truths, for example many believe that there will be no Social Security left by 2036. But the reality is that although the surplus may run out by that time if nothing is done, the current payroll taxes would still be enough to fund 77% of all the promised benefits for future generations.
• People believe that Social Security only gives you what you put in. This is not true because the money that you are putting in today is paying for the people that are receiving the benefits today. And your total amount of future benefits depends on how much you earn, when you retire and how long you are expected to live.
• There are rumors that younger generations would be better off if they did not pay into Social Security, but instead invested that same amount of money, ever year of their working life, into stocks and bonds. However, you would need to invest far more into these stocks and bonds than what you would be contributing to make this work; not to mention that you would have to be sure never to tap into these resources or to skip a year of investing.

Social Security provides assistance to young and older people alike. It supports qualifying widows and widowers with children, and also aids orphans. The Social Security administration is doing all that it can to keep this benefit around for citizens, but to do that we are seeing that people must make sacrifices. For the second year in a row, retired and disabled Americans are not able to get Social Security benefits increased.

There are a few tips that will help you get the most out of your Social Security benefits:

• Wait as long as you can to begin claiming Social Security. You can begin claiming it between the ages of 62 and 70, but the closer to 62 you start, the smaller your checks will be.
• If you are married, you can chose to accept benefits based on your income or equal to 50% of your spouse’s benefits.
• If you already filed your claim for Social Security, and would like a higher benefit amount, you are able to file Social Security Form 521, Request for Withdrawal of Application. This will require you to pay back all of the benefits you have received, but when you reapply, you
  are able to get your higher amount for waiting until you are older.

Social Security can be a confusing topic for people nearing their retirement age. This is just a brief overview of the issues relating to the current Social Security laws. If you need more help understanding Social Security and how laws may impact your benefits, please give us a call!

Alternative Minimum Tax (AMT) is a confusing subject for most clients and, if they are required to pay, it can be a frustrating one. So, how can a client know if they may be subject to owing AMT? chances are higher if you paid it last year, you may owe again this year. Also, if you have some of the deductions on your regular tax liability that are listed below, your chances of owing AMT increase.

The percentage of people that are required to pay AMT has only been increasing over the last decade.  From 2000 to 2010 the amount of people earning between $200,000 and $500,000 that owed AMT has increased from almost 19% to 64%. AMT was established in 1969 to prevent the taxpayers that were considered wealthy by Congress from using different tax shelters to avoid substantial federal tax liabilities. But, this tax is affecting more and more taxpayers because it does not adjust for inflation.

AMT essentially forces the taxpayer to calculate their tax twice, once following regular income tax rules and again using AMT rules; you are then required to pay the higher of the two tax liabilities. There are dozens of deductions that are allowable forregular taxes but are not deductible for AMT purposes, which will increase your taxable AMT income.

Itemized deductions are AMT’s first concern. If you have taken the standard deduction, you must add that back into AMT taxable income. If you have instead elected to take itemized deductions, you must go through each section and review which of those deductions can and cannot be used for AMT purposes.

Medical expense deductions are held to a higher threshold, meaning that for it to be eligible it must be higher than 10% of your adjusted gross income, compared to the regular tax, it is a 2.5% increase.

You cannot take deductions for taxes such as state and local income or real estate paid throughout the year. But, due to the fact that you are not allowed this deduction, you are also not required to report state tax refunds as taxable income for AMT.

You are allowed to take a deduction for home mortgage interest paid, so long as the loan relates directly to buying, building, or improving your home. If the loan was used to purchase something such as a car, this is not deductible for AMT. Along the same lines, miscellaneous itemized deductions are not deductible for AMT, the main one being the employee business expenses.

Other areas that are directly related to AMT are interest income, incentive stock options, and passive activities. These topics all have unique rules that will create differences between regular and AMT tax.

There are some areas that will reverse themselves over time, depreciation and long term contracts, are two topics that create differences between AMT and regular tax. But by the time these have been
fully realized the difference between the two types of tax will be zero, and they are referred to as timing differences.

Once you have gone through these areas, you are able to take an AMT exemption, which is phased out as income increases. For married couples the exemption starts at $74,450 for 2011, but gets reduced if your AMT income is over $150,000. For a single person the exemption is $48,450, but gets reduced if your AMT income is over $112,500.

AMT has several other differences from regular tax that can be seen on Form 6251, used to calculate Alternative Minimum Tax. Each client’s tax situation is unique, and there are tax planning strategies that can help to make the best of AMT. For more information about AMT or help with tax planning for AMT, please give us a call. We’d be happy to help you understand what impact your Alternative Minimum Tax could have on your next tax return!

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