Alternative Minimum Tax Planning for Small Businesses and the Self-Employed

Those among us who own small businesses and who are self employed can control the timing of their income to a far greater degree than the average worker or retiree. For this reason, small business owners and those of us who are self-employed are in a better position than most when it comes to the Alternative Minimum Tax (ATM). A crucial element in dealing with the ATM is - you should be able to control the timing of your income.

Decisions regarding business expenses, such as when to hire on consultants can impact your AMT. Perhaps it is better for you to have the consultant expenses fall into next year instead of this year. Also, particular expenses, like depreciation, can have a direct impact on your Alternative Minimum Tax. The depreciation schedule is different for the ATM than it is for regular taxes, but there a couple of different options you can choose from in determining depreciation in regard to your business, even with the ATM.

If you are operating a pass-through business then the net income of the business passes through to the individual taxpayer on their income tax return. Then, the billing and collections from customers is also reflected directly in the person's individual income tax return. Incurring expenses and paying expenses are, as well, revealed on the individual income tax return. All this coming and going of money can, conceivably, be controlled to your best advantages with the ATM.

Alternative Minimum Tax items that are acquired by pass-through entities show up as entries on the shareholder, partner, and member tax returns. They are separate on the K-1 from the entity.

If the business does not qualify as a pass-through, then the Alternative Minimum Tax items are reported by the entity, as its tax records are calculated. If this were the case, any income planning would center on the cash the individual has taken from the business. This cash could be a bonus, dividend, salary, or any variation thereof. The ATM effect of each would have to be taken into account for planning.

Obviously, the ATM makes tax liability planning more complex, but as a business owner or a self-employed individual you can control some important features key to planning how to best deal with the Alternative Minimum Tax.
As with any business, it is strongly suggested you consult a financial planner or tax expert in order to reason through a plan that will work best in regard to your individual business needs and opportunities.

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Alternative minimum tax is inevitable for everyone - especially for self-employed. However, with smart strategies you can reduce its impact. How? Chintamani Abhyankar provides useful advice.

Chintamani Abhyankar, is a well known expert in the field of finance and taxation for last 25 years. He has written many books explaining inside secrets of the magic world of personal finance. His famous eBook Stop donating your money to IRS which is now running in its second edition, provides intricate knowledge and valuable tips on personal finance and income tax.