"If a client has children away at college, they might be better off letting the children claim themselves as dependents, even if the children are making very little money, if that will keep the parents in the regular tax system rather than the parallel AMT. You have to consider when to pay medical expenses, because you might not want it as a deduction in 2005-save it for 2006 when you are going to be put in the AMT no matter what. You have to consider when to pay property taxes and state and local taxes if you have the option of paying in December or January," Kitces says.  Deductions for property, state and local taxes are not allowed under AMT, and medical deductions are more limited.

"This just adds a lot of uncertainty in planning from one year to the next," he adds.

Other provisions in the 2004 tax act extend a larger tax credit for children, and extend the provisions eliminating the 0marriage penalty tax. The child tax credit, which would have dropped from $1,000 back to $700 in 2005, will remain at $1,000 through 2010. Tax payments for single people and married couples were equalized in previous tax bills but would have reverted to earlier, unequal amounts in 2005, and then gradually be phased back in over several years. A provision in the 2004 act keeps the equal calculations in place through 2010, eliminating the extra tax liability for married couples.

Other provisions in the act allow military combat pay to be calculated as income for the earned income tax credit and child tax credit, increasing benefits for those in the military. Still other provisions extend business credits that had been set to expire. The sunset dates are included in tax bills, forcing Congress to revisit the issues, because of a Congressional rule that requires a super majority for tax bills that affect revenues beyond a ten-year time period, Aaron noted.

"The first thing every financial planner needs to do is have a meeting with their clients and do a projection for two years," says William Barnes, CPA, MST, CFP, senior tax compliance officer for Groen, Kluka and Co. in Troy, Mich., a full-service financial management firm.

"Capital gains do not affect AMT, but stock options do sometimes, and tax-exempt interest is sometimes affected and sometimes not. There is room for planning in these arenas," Barnes says.
Part of the problem with planning is that no one knows what Congress and the president will do in 2005 for future tax years, says John Gay, CFP, of Frisco Financial Planning in Frisco, Texas.

"Normally you want to accelerate deductions and postpone income, but if a client may be affected by AMT, you might want to accelerate income and postpone deductions to stay out of AMT," he says. "The problem is the tax code is ridiculously overcomplicated, and the AMT makes that worse because it is a tax code within a tax code. But if, as a financial planner you have to bet on what Congress will do, I usually bet on no change. "
Others predict changes with a new presidential term, no matter who is elected.

"Planning is even more important this year, especially since the 2004 tax act was enacted relatively late in the year. It did not give us much time to adjust. As for next year, there are just too many variables to be able to predict what Congress might do for future tax years," says James J. Holtzman, a CFP and CPA at Legend Financial Advisors Inc., in Pittsburgh. 

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