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Just a heads up on the AMT credit recovery strategy - if your income fluctuates year to year, you might want to time when you claim these credits. In years when your income is higher, your regular tax is more likely to exceed your AMT, allowing you to recover more of those credits. I've been carrying forward AMT credits from ISOs for 3 years now and have recovered about 70% by being strategic about timing. Don't forget Form 8801 needs to be filed every year until your credits are used up, even in years when you don't recover any portion of them.
Any recommendations on what income level typically makes it worth claiming? I'm in a similar situation with about $12k in AMT credits but not sure if my $110k salary will trigger enough regular tax to recover anything.
At $110k, you'll likely recover some of your credits, but it depends on your deductions, filing status, and other factors. If you're single with standard deduction, you'd probably begin to recover credits at that income level. Generally, I've found that married couples often need $150k+ combined income before recovering significant AMT credits, while singles can start seeing benefits around $90-100k. Consider consulting with a tax pro for a year-by-year projection based on your specific situation.
Has anyone here done a disqualifying disposition of ISO shares after paying AMT? I'm in a similar situation but thinking about selling my shares within a year of exercise. Trying to understand the tax implications.
If you do a disqualifying disposition (selling before meeting holding requirements), it gets even more complex. The good news is you'll generally receive an AMT income adjustment that can help recover some of your AMT in the year of sale. The bad news is you'll pay ordinary income rates on the spread instead of capital gains rates.
The same thing happened to me and my wife! We owed $3,200 filing jointly but would've gotten about $900 each filing separately. We talked to our accountant and she said it was because: 1) Our withholding wasn't enough for our combined income 2) We both had selected "married" on our W-4s which assumes one main income 3) We had some investment income that pushed us into a higher bracket She suggested we adjust our withholding using the IRS calculator and possibly make quarterly estimated tax payments to avoid the same issue next year.
Can you actually switch from MFJ to MFS after you've already filed? I'm in the same boat and wondering if I should amend.
Yes, you can switch from married filing jointly to married filing separately by filing an amended return (Form 1040-X), but only until the filing deadline for that tax year. After the deadline passes, you can't switch from joint to separate. However, my accountant actually advised against switching in our case. While it looked like we'd get refunds filing separately based on a simple calculation, we would have lost several valuable credits and deductions that are only available to joint filers. The separate filing calculation also has some special limitations that aren't obvious when you just run a basic comparison. Make sure you're looking at the complete picture before making that decision.
The software you used to calculate your taxes separately might not be showing you the full picture. When filing separately, there are several disadvantages: - You can't claim Earned Income Credit - You can't claim education credits like the American Opportunity or Lifetime Learning Credits - You can't exclude interest from savings bonds used for education - If one spouse itemizes, both must itemize even if the standard deduction would be better for one - IRA contribution deductions might be reduced or eliminated - Child and dependent care credit is usually reduced Try running the full calculation with these limitations and see if separate filing still looks better. Software sometimes doesn't apply all these restrictions when you're just exploring options.
Is this still true with the new tax law? I thought they changed some of this stuff.
One thing nobody has mentioned yet - make sure you're calculating your HSA contribution limit correctly in the first place! Remember that the limit includes ALL contributions - both yours and your employer's. That's a common mistake that leads to excess contributions. For 2024, the limits are $4,150 for individual coverage and $8,300 for family coverage, with an extra $1,000 catch-up if you're 55 or older. Double-check these numbers against your situation to make sure you're not setting yourself up for another excess contribution.
That's actually a really good point and might be exactly how I got into this mess in the first place. I didn't realize my employer's HSA match counted toward my annual limit! Is there any easy way to track this throughout the year so I don't go over again?
The easiest way to track it is to regularly check your HSA statements or online account. Most HSA providers show a running total of all contributions for the year, broken down by source (your contributions vs. employer contributions). Some providers also have alert features you can set up to notify you when you're approaching your limit. Otherwise, I'd recommend setting a calendar reminder to check your total contributions quarterly, especially if your employer makes irregular contributions or matches.
Quick question - when calculating earnings on the excess contribution, is there a specific formula to use? My HSA grew overall, but how do I determine what portion of that growth is attributable to the excess $$ specifically?
This is actually a great question! The IRS doesn't provide a specific formula, but the generally accepted method is to apply the overall account's rate of return to the excess amount. For example, if your HSA grew by 5% during the period the excess was in the account, you'd calculate 5% of your excess contribution amount to determine the earnings attributable to that excess.
Former tax preparer here - one thing nobody's mentioned yet is that you should also check your state requirements. If you're in Louisiana (as you mentioned), they typically follow the federal extension deadline but you might need to file a separate state extension form. Also, if you have access to your prior year's tax return, one simple approach is to estimate based on last year's numbers plus add 20-30% for your crypto activities. This gives you a reasonable starting point that the IRS would consider a good faith effort.
Thanks, that's a good point about state requirements. My situation is actually a bit different from last year since I had a big job change plus the crypto stuff, so I'm not sure if last year's return would be helpful as a baseline. What other approaches would you suggest for estimating?
Since your situation changed significantly with both a job change and crypto, you're right that last year's return might not be as helpful. In that case, I'd suggest doing a quick calculation of your W-2 income and estimated tax liability from that (you can find tax tables online), then add an additional amount for crypto. For the crypto portion, even a rough estimate based on your trading volume would help. If you traded $10,000 in crypto with an average gain of 20%, you might set aside roughly 25-30% of those gains ($500-600) for taxes as a starting point. It's not perfect, but it shows good faith effort.
Just FYI - I messed up my extension last year by leaving the estimated tax blank thinking I would figure it out later. Bad move! Ended up with over $700 in penalties and interest even though I paid the full amount when I actually filed. The IRS doesn't play around with this stuff.
Same happened to my brother! He trades crypto too and just put $0 on his extension form thinking it was just a time extension. He ended up owing about $4k in taxes plus another $800 in penalties and interest. Definitely better to overestimate.
Ravi Malhotra
7 One thing nobody's mentioned yet is that CPAs can get you in compliance, but tax attorneys have attorney-client privilege. That means if you discover something problematic from the past, discussions with your tax attorney are protected in ways conversations with a CPA aren't.
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Ravi Malhotra
ā¢16 Wait really? So if I tell my CPA about mistakes I made on past returns, they could be forced to tell the IRS, but a lawyer couldn't?
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Ravi Malhotra
ā¢7 That's exactly right. Conversations with your attorney are protected by attorney-client privilege, which means they generally cannot be compelled to disclose what you've told them about past issues. CPAs do have a type of confidentiality privilege, but it's much more limited and has significant exceptions, especially in cases involving potential tax fraud or criminal matters. If you're concerned about disclosing past problems, speaking with a tax attorney first provides stronger protection while you figure out the best approach to resolve the situation.
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Ravi Malhotra
5 Don't forget enrolled agents (EAs)! They're tax specialists licensed by the IRS who can represent taxpayers before the IRS just like CPAs and attorneys but usually cost less. For many situations they're perfect middle ground.
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Ravi Malhotra
ā¢22 Are they actually good though? I never heard of enrolled agents before. Can they handle complicated stuff like business taxes?
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