TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, February 28, 2007

WSJ: Counterintuitive Tax Planning

Interesting article in today's Wall Street Journal:  When Flouting Convention Is Your Best Tax Bet; New Laws, AMT May Call For a Contrarian Approach; A Child, but Not a Dependent, by Tom Herman:

When you're working on your taxes, sometimes it pays to be illogical. Taking actions that seem to make no sense, such as passing up a juicy deduction, can be smart because of the growing complexity of our nation's tax laws -- and recent tax-law changes offer even more incentive to be a contrarian this year.

Counterintuitive strategies are becoming increasingly common as growing numbers of people are ensnared by the alternative minimum tax, or AMT. Some tax maneuvers that would make sense under the regular system can backfire if you're subject to the AMT, a parallel tax system designed decades ago to prevent a small number of high-income people from avoiding paying tax. Since the AMT wasn't indexed for inflation, it's now hitting rapidly growing numbers of Americans. Unless Congress changes the law, more than 23 million people will be caught in the AMT's web for 2007, up from about 3.5 million for 2006.

Here are a few examples of where upside-down thinking may help:

  • Filing Separately
  • Don't Claim Dependents
  • Working Abroad
  • Deduct Sales Taxes (even if lower than state and local income taxes)
  • Itemizing Deductions (even if lower than standard deduction)

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I don't agree. Filing seperately very rarely works out to be beneficial based on the requirement for both spouses to itemize if one does. working abroad doesn't work because companies will often tax equalize the employee. the other items relate to deductions generally won't work based on the fact that you're focusing around taxes

Posted by: Eric | May 27, 2007 8:34:02 PM