AMT & Miscellaneous Deductions
Miscellaneous deductions are segregated into two categories, Tier 1 or Tier 2 expenses.
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Tier 1 – Tier 1 expenses are deductible against both the regular tax and the AMT.
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Tier 2 – Tier 2 expenses are all of the other miscellaneous expenses not included in the Tier 1 group., For regular tax purposes, these expenses are deductible to the extent they exceed 2% of AGI. For AMT purposes, they are not deductible at all., For years 2018-2025, the TCJA suspends the regular tax deduction of Tier 2 expenses. Thus, during the suspension period these expenses won’t be deductible for either regular tax or AMT.
Strategies to Minimize the Effects of AMT for Years Other Than 2018-2025
Have IRA/Pension Fees Deducted from the Pension Accounts* - Some taxpayers who wish to maximize their IRA and other pension accounts will pay the expenses of maintaining those accounts directly (not have them deducted from the pension account). These individuals can then include those expenses in their miscellaneous Tier 2 itemized deductions. However, if they are subject to the AMT, they gain no benefit from those deductions and should consider having the fees deducted from the pension accounts. This strategy also applies to taxpayers who lose the benefit of the deduction because of the AGI limitation and those who take the standard deduction.
Negotiate Accountable Reimbursement Plans with Employer* - Taxpayers who have significant employee business expenses should attempt to negotiate an "accountable" reimbursement plan with their employer which would eliminate the need to claim the expenses as a miscellaneous deduction and essentially allow the expenses to be deducted from gross income.
Allocate Tax Prep Fees to Other Schedules* - Where possible, allocate the tax preparation fees to other Schedules such as C, E and F. Caution: Don’t overlook the 1099 filing requirement if $600 or more is allocated to business schedules.
Accelerate or Defer Expenses to Non-AMT Tax Years - Where possible, accelerate or defer the Tier 2 deduction to a tax year where the taxpayer is not subject to the AMT.
*These strategies also have merit for tax years 2018-2025 when the Tier 2 deductions are suspended.