AGI is the number on the last line of page one of the Form 1040.
For purposes of the AMT, however, there’s a slight difference – the threshold a taxpayer must exceed is ten percent of AGI, instead of 7.5%.
This difference in the calculation is the AMT item reported on the Form 6251.
The tax saving strategy for medical costs is basically the same for the AMT as it’s for the Regular Tax.
However, it also requires keeping an eye on that 2.5% difference.
As stated before, the key is when the medical costs are incurred and, most importantly, when those expenses actually are paid.
Summary of the Dental Insurance Tax Deduction
If an individual currently is in the AMT, to the extent any elective surgery, dental, vision work, and it might be delayed until next year, consideration should be given to doing so.
In case the taxpayer isn’t in the AMT next year, a tax benefit could be achieved that wouldn’t be obtained this year.
In addition, note that, even when the individual is in the AMT again next year, to the extent a group of medical costs results in exceeding the 10% threshold, the taxpayer will at least get a benefit for that amount.
A Brief Example:
For instance, assume AGI is $100,000 and that it’ll be the same next year.
The taxpayer decides to get fixed-up a bit, and the list includes a physical examination with diagnostic tests and x-ray tests, seeing the dentist for braces, and Lasik eye surgery – all together, $20,000 in medical costs.
For a taxpayer in the AMT, it’d be a disaster to do 50% of this now and half next year – the total after tax cost will be the full $20,000.
If instead all the work is done in one year, the Internal revenue service offers a nice subsidy – just as much as $2, 800 for an AMT payer, multiplied by the 28% AMT bracket.
Even better, if in this example the taxpayer is in the AMT this year, but through tax planning won’t be in it again next year, the Internal revenue service subsidy possibly might be $5,000.