Worse, miscellaneous deductions subject to the 2% floor can't be claimed at all in the alternative minimum tax.
But such losses are not subject to the same floor (2% of adjusted gross income) that limits other miscellaneous deductions.
Under the AMT, a taxpayer must do a second calculation that doesn't allow itemized miscellaneous deductions such as lawyers' fees.
They include the new 3.8% investment income tax, the new phaseout of personal exemptions and itemized deductions, the deductibility of medical expenses, casualty losses and miscellaneous deductions, and certain tax credits.
Then in 2001 and 2003 respectively, the Federal Circuit (in a case involving 13 trusts created for the benefit of Mellon family members) and the Fourth Circuit sided with the IRS and said that investment management fees paid by a trust are subject to the 2% floor on miscellaneous deductions, just as if the cost had been incurred by an individual.
Tax preparation fees, when taken as miscellaneous itemized deductions, are disallowed in the AMT.
FORBES: How to adjust your investing, loan and AMT strategies.
Qualifying tuition is grouped with other miscellaneous itemized deductions, subject to a disallowance equal to 2% of adjusted gross income.
But for many individuals not regularly filing as proprietors, even business legal fees are generally treated as miscellaneous itemized deductions.
First, most costs (other than the purchase price of items and repair materials) become miscellaneous itemized deductions, usable only to the extent they exceed 2% of his adjusted gross income.
This rule allows trustees a full deduction only for miscellaneous itemized deductions that "individuals are incapable of incurring"--taken literally, that could mean virtually no administrative cost of a trust is fully deductible.
But the Internal Revenue Service, and three federal circuit courts have ruled since then that a trust's investment fees are subject to the same 2% floor for miscellaneous itemized deductions that individual tax filers are subject to.
Deductions may only be of the miscellaneous itemized variety subject to a 2% threshold and to alternative minimum tax (AMT).
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