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AMT Case Study: Vice President Biden’s 2009 Tax Return

Todays Date: November 20, 2018

As has become customary, the President and the Vice President have released their recently-filed tax returns. You can find these tax returns on the White House blog by doing a search for “tax returns.” An interesting thing to note is that Vice President Biden remains stuck in the Alternative Minimum Tax, as he has been for at least the past several years.

As we have been discussing in recent articles, the combination of the AMT exemption phaseout along with Biden’s itemized deductions is what ensnares him in the AMT trap. The VP’s total income was just over $300 thousand, certainly not in the “rich” category by today’s standards for a couple with two incomes. President Obama, with income in excess of $5 million, didn’t even come close to paying the AMT.

Let’s review what we have been talking about in the last few articles, using the Vice President’s return as a case study. The reader is encouraged to look at the Bidens’return as we go through this analysis.

AMT exemption phaseout

The VP’s Alternative Minimum Taxable Income (“AMTI”) was $298,013, right in the middle of the AMT exemption phaseout range of $150,000 to $433,800. So instead of getting his full AMT exemption of $70,950, he was limited to an exemption of $33,947. Was he starting to hear the AMT sucking sound at this point? You bet he was.

Itemized deductions – state income tax

The Vice President’s state of residence is Delaware, one of the majority of states that has an income tax. As can be seen in his tax return, he made a total of $17,718 in state tax payments in 2009 through a combination of withholdings from his and his wife’s wages as well as prior year estimated payments. This amount properly was deducted for Regular Tax purposes, as can be seen on his Schedule A – Itemized Deductions.

As it turned out, however, Biden was significantly overpaid – more than was required to meet his obligation to the state of Delaware. The overpayment of $4,749 is seen on his Delaware state tax return also shown on the White House web site along with the Federal return.

AMT impact from state income tax overpayment

The $4,749 overpayment by itself resulted in $1,567 in AMT. Since this means zero in Federal tax benefit because the AMT allows no deduction for taxes, this was a wasted deduction. Had the VP done some basic AMT planning, he would have been better off paying this in 2010 as part of his 2010 Delaware taxes.

Also, Delaware tax law only requires that 90% of an individual’s income tax needs to be paid in by December 31 in order to avoid a penalty. Adding this 10% to the actual overpayment means that he paid another $470 in 2009 Alternative Minimum Tax that did not have to be paid.

Note also that the Vice President’s overpayment of Delaware taxes will be an AMT item – this time in his favor – on next year’s 2010 return. Such refunds are income for Regular Tax purposes but are not for the AMT because of the absence of an AMT benefit having been received in the prior year.

Itemized deductions – property taxes

We cannot tell from the VP’s income tax return when he received his property tax bill or when it was paid, but this is another area of potential AMT savings. A taxpayer’s possible control over paying a property tax bill in December or in January is a factor with direct impact on the amount of Alternative Minimum Tax paid.

AMT planning

Will the Vice President ever be able to get completely out of the Alternative Minimum Tax? While we don’t have the information to know the answer to that question, there certainly are enough opportunities, as discussed above, for him easily to at least reduce the amount of AMT that he is paying.

Conclusion

Even though this Memorial Day weekend officially opens barbecue season, and we now have other summertime distractions like golf, tennis, or just taking some time off for a well-earned vacation, it soon may be too late to adjust state tax withholdings and to make other needed changes if you don’t start giving your 2010 AMT situation a little early thought.

George Bauernfeind is with AMTIndividual, providing analysis, customized strategies, and an online dual tax calculator / planner to help you reduce your Alternative Minimum Tax. Visit www.amtindividual.com or www.amtblog.com to read more tax planning articles or to access this tax software on the Alternative Minimum Tax.

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