Life Insurance is a Preference Item Subject to the AMT Tax

[Brokers Alliance]

It was shocking! I was teaching a continuing education course entitled The Last Tax Sanctuary at the CPA Society, expounding on the virtues of tax free withdrawals to basis and policy loans of gain from a non modified endowment contract. A question arose that I thought every proponent of life insurance as a tax advantage retirement alternative should know.

The conversation revolved around life insurance as a preference item, which if true, would be subject to the alternative minimum tax (AMT). I must say I was caught off guard by the conversation. As I pondered the question I remembered that life insurance proceeds in certain corporately owned sceanrios could be classified as a preference item and taxed under the AMT regs. However, it was not relatent to individuals taking out tax free income in the scenerio I addressed in the first paragraph. So check this out.

The additional tax advantages would include: not being subject to the AMT like other tax free items such as some tax free munis, but the tax free income would also not be included under the provisional income test for the taxation of social security benefits. Two more piercing arrows in your closing talking points for life insurance as a tax free income alternative.

-Steve

 

[hermans25]

Beginning with the year 1990, the book assets another became according to 75% of the balance of accepted adapted balance of the another minimum taxable assets (AMTI). Book assets preferences are afflicted by corporate-owned activity allowance in the afterward situations:
1. If the insured dies, the balance of the activity allowance policy's Death Benefit over the Banknote Abandonment Amount becomes book assets to the corporation.
2. If the allowance policy's ceremony aberrant exceeds the admission in the banknote abandonment bulk for a authentic year, the aftereffect is a abatement in the book assets and appropriately a abatement in the corporation's acceptance to the addition minimum tax (AMT).