FAQ: I’m subject to Alternative Minimum Tax. Do charitable donations still give me a break?

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Although tax season is behind us (phew!), it reminded me of this very common question.

Let’s say it’s back in April and you’re figuring out how much tax you owe the federal government.  At some point you are told “you are subject to AMT.” That stands for “Alternative Minimum Tax.”  But what does that mean?

When you calculate how much tax you owe Uncle Sam, you may not be paying “enough.”  What constitutes “enough” is a matter of opinion, and the federal government has a strong opinion about that particular subject.

If you end up falling under AMT tax rules, several deductions that you’ve come to know and love won’t help you reduce taxes anymore. Total bummer.

Ready for the good news? The charitable deduction is still allowed, even under AMT.  So giving to charity should still reduce your tax bill!

Admittedly, it may not reduce your tax bill as much as it used to. In 2014, if you’re not subject to AMT, a charitable gift might reduce taxes by nearly $0.40 on the dollar. Under AMT, the deduction is more likely to reduce taxes by $0.28 on the dollar.  But then again, you’re only paying tax at the AMT rate of 28%.

But that can add up. A gift of $10,000 – which can make an incredible impact on a charity you care about – can also save you $2,800 in taxes.  Not bad!

Have questions? Connect with me.

TAGS: Tax Considerations alternative minimum tax

About the author

Jeremy Arkin

jeremy.arkin@duke.edu

With more than 15 years of experience in gift planning and development, Jeremy helps alumni find ways to support Duke that complement their larger personal and financial goals. He understands the ins and outs of giving techniques that involve tax, retirement and estate planning. He also develops strategies for donating complex assets such as real estate and private business interests. When he’s not at work, Jeremy attempts to channel Ron Carter and Ray Brown while playing his double bass.