This Month's Topics

  • Beware of the Alternative Minimum Tax
  • Save Money by Taking Advantage of Low Interest Rates
  • The FICA Refund for Medical Residents
  • Have you checked your credit report lately?
  • 2002 & 2001 Tax facts
  • Our NEWSLETTER ARCHIVES contains an
     index and links to our previous months' newsletters



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    When you join Upromise, you'll save for a child's education just by doing what you normally do everyday.  Through the program, companies contribute a portion of what you spend into a Upromise account for your child, grandchild, or any other future college student.  Believe it or not, you'll earn college savings when you buy toys, office supplies and gas, dine out, shop on-line - and even buy or sell a house or get a new mortgage.  To find out more about this great program, check out



    If you're a CPA who provides tax planning and preparation services to young health care professionals, and you’d like to find out more about The MDTAXES Network, please give us a call at  (800) 471-0045 or e-mail us at (Don't forget to include your mailing address.)


    First Annual MDTAXES Conference

    We're pleased to be hosting our first annual MDTAXES conference, exclusively for our member CPA firms, in New York City, on Saturday, November 16th.  During the conference, we'll focus on the various tax and financial planning issues applicable to young health care professionals.

    All CPAs who are members of The MDTAXES Network are invited to attend.  For information,  please e-mail us at


    September, 2002


    by Andrew D. Schwartz, CPA

    Did you know that you're supposed to calculate your taxes two different ways each year?  First, you figure your tax liability under the regular tax system.  And then you re-calculate your taxes to find out whether you're subject to the Alternative Minimum Tax (AMT).

    Blowing off the AMT calculation in the old days was no big deal since very few people were subject to that tax.  These days, however, the chances of your getting hit with the AMT go up each year.  Congress' Joint Committee on Taxation has projected that more than 35 million taxpayers will be subject to the AMT in 2010, up from just 1.5 million in 2001.

    What is the AMT?

    The Alternative Minimum Tax was instituted by Congress back in 1969 to ensure that high income taxpayers paid at least a minimum amount of federal income taxes - regardless of the tax deductions and credits they were eligible to claim. 

    So why are more taxpayers finding themselves subject to the AMT each year?  The problem is due to inflation.  While most other aspects of the federal income tax system have been indexed for inflation over the years, the AMT brackets have remained relatively constant.  Plus, because of inflation, the taxable income reported by the average taxpayer has increased dramatically since 1969.  Because of both of these factors, the AMT is no longer a tax just for the wealthy.

    Should You Worry About the AMT?

    More and more middle income taxpayers are finding themselves paying the AMT each year.  Your chances of being hit by the AMT increase if you:

    • Have a large family

    • Live in an area with high real estate taxes and/or high state and local income taxes

    • Claim significant unreimbursed professional expenses as an itemized deduction.  (Claiming your expenses against your self-employment income on a Schedule C will not trigger the AMT.)

    • Exercise and hold Incentive Stock Options (ISOs)

    • Realize significant long-term capital gains

    How Does the AMT Work?

    To calculate your AMT, start with your federal taxable income, and then add back the personal exemptions that you claimed.  Next, add back certain itemized deductions that aren't allowed under the AMT, including:

    • The deduction for taxes, including state income taxes and real estate taxes paid during the year

    • The interest paid on the portion of your home equity loans not used to purchase or improve your residence

    • Your miscellaneous itemized deductions, including your unreimbursed professional expenses.

    If you exercised any incentive stock options (ISOs), or are claiming depreciation in connection with business or rental property, you must adjust your taxable income accordingly.  And you might also end up paying the AMT if you realized significant long-term capital gains during the year.

    After making all of the required adjustments, you're ready to calculate your Alternative Minimum Tax.  If your AMT liability exceeds your regular tax liability, you're required to pay the higher amount to the government. 

    Form 6251

    A Form 6251 is the tax form you'll use to calculate your AMT.  A good place to start is the IRS' website,, where you can download the Form 6251 along with the instructions. 

    If you find the concept of the AMT confusing, or the instructions of the Form 6251 difficult to decipher, then seeking the assistance of a CPA who specializes in personal income taxes might make sense.

    What Can You Do to Minimize the AMT?

    Planning ahead is essential.  Many great tax planning strategies have backfired because of the AMT.

    Consider paying your state income taxes, real estate taxes, and unreimbursed professional expenses in years that you won't be subject to the AMT.  Structuring capital gains transactions to span multiple tax years might help you avoid the AMT.  And if you're fortunate enough to be holding ISOs that are in the money, beware of the AMT if you plan to "exercise and hold" any of your options.

    Even if you end up paying the AMT, all's not lost since the IRS allows you to get back those taxes in future years in certain instances.  To find out if you're eligible for an AMT Credit, you'll need to complete a Form 8801, Credit for Prior Year Minimum Tax.  Good luck working through this form.



    Are you taking advantage of these reduced rates?  Lower rates will help you cut down on the time it takes you to get out of debt by minimizing the interest you pay each month.  Remember, the lower the interest rate, the larger the portion of your monthly payment that will get applied against your outstanding balances.

    • If you're carrying a balance on your credit cards, there's plenty of opportunities available to cut your interest rate.  Check out to find the best deals available.

    • If you still owe student loans, see how much you'll save by consolidating your loans into one loan with a lower interest rate at



    For more information, go to our February, 2001 Newsletter



    You work hard to keep your credit report as clean as possible. Even so, the current credit reporting system allows for incorrect items to appear on your report that could adversely affect your credit score. Make sure that the information on your credit report is accurate by ordering a free copy of your credit report on-line at or by purchasing a merged credit report reflecting information from all three credit reports at




    Income Taxes

    Saving and Investing



    • 3rd qtr estimates due 9/15/02

    • SIMPLE/IRAs need to be set up by 10/1

    • Good time to meet with insurance specialist to review your life & disability insurance


    2002 & 2001 TAX FACTS

    • For 2001, the standard deduction for a single individual is $4,550 and for a married couple is $7,600. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes, real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses. Our February, 1998 newsletter addressed the issue of itemizing your deductions.  For 2002, the standard deduction has increased to $4,700 for single individuals and to $7,850 for married couples.
    • For 2001, the personal exemption is $2,900. Individuals will claim a personal deduction for themselves, their spouse, and their dependents.  For 2002, the personal exemption has increased to $3,000.
    • The maximum earnings subject to social security taxes has been increased to $84,900 in 2002 from $80,400 in 2001.
    • The standard mileage rate has been increased to $.365 per mile in 2002 from $.345 per mile during 2001. Deducting automobile expenses was addressed in our February, 1996 newsletter .
    • The maximum annual contribution to a 401(k) plan or a 403(b) plan has been increased to $11,000 for 2002 from $10,500 in 2001.  And if you'll be 50 or older by December 31, 2002, you can contribute an extra $1,000 into your 401(k) or 403(b) account this year.



    Tax and financial planning calendar for September, 2002

    The Millionaire Next Door.  Find out the habits of America's wealthy. You'll be surprised at who comprises the bulk of America's millionaires.

    Organize Your Finances with Quicken 2001 in a Weekend

    Both these books are available at Barnes&

    If you have a friend, colleague, or family member who is always bragging about things they have done to cut their taxes, then check out our new gift items with the saying - "Everything is deductible...until you get audited!"

    Ask questions, add comments--interact with our CPAs every day

    Join our Live Tax Chat on the first Wednesday of each month

    Save for your child’s college education just by doing what you normally do every day. - Save for College!


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