This column is a continuation of our November column on year-end planning ideas.

A planned analysis of your options can produce tax savings through either postponing or accelerating items of income or deduction.

Deferral of Income: Defer receipt of salary or bonus Postpone sale of assets at a profit Make installment sales of property Contribute to a qualified plan Gift income producing property to family members in a lower tax bracket Postpone the receipt of proceeds from a qualified plan or take them as an annuity distribution Accelerating Deductions: Accelerate charitable contributions Prepay state and local income taxes Prepay property taxes Prepay mortgage interest Alternative Minimum Tax The Alternative Minimum Tax (AMT) is an alternative tax computation that applies 26 percent and 28 percent graduated rates to a tax base known as alternative minimum taxable income (AMTI). AMTI consists of regular taxable income increased by tax preference items and certain adjustments, and reduced by the AMT exemption. The 26 percent rate applies to AMTI (after exemptions) of $175,000 or less, and the 28 percent rate applies to AMTI greater than $175,000 (after exemption). The AMT is payable to the extent it exceeds a taxpayer's regular tax liability. The AMT exemption amount is $45,000 for joint filers, and $33,750 for single filers.

The AMT was enacted to ensure that taxpayers with substantial income would not avoid a large part of their tax liability by using certain exclusions and deductions otherwise referred to as tax preference items.

Tax preference items that must be added to taxable income are: Tax-exempt interest on "private activity'' municipal bonds issued after August 7, 1986 The difference between the fair market value and option price on the date of exercise of incentive stock options Personal exemptions The standard deduction (if the taxpayer does not itemise) State and local income, personal property and real estate taxes Miscellaneous itemised deductions Mortgage interest expense from a home equity loan after June 30,1982, if the proceeds were not used to purchase, construct or substantially improve a principal residence or qualified second home If you are going to be subject to the AMT you should try to accelerate as much ordinary income as possible until you reach the crossover point where your regular tax liability equals the AMT liability.

Ordinary income can be accelerated by: Converting municipal bonds into taxable bonds; redeeming CDS, Treasury bills, and savings bonds to generate interest income; Consider withdrawing money from IRAs (if not subject to the 10 percent penalty); Exercising incentive stock options and selling option stock in the same calendar year to recognise additional ordinary income and eliminate a like amount of tax preference; and exercising non-qualified stock options, as the bargain element is taxed as ordinary income at time of exercise.

Try to defer deductions that reduce your regular taxes but do not reduce ATM such as: Limiting payment of estimated state income taxes, real and personal property taxes in the current year to an amount sufficient to avoid penalties; and/or Postponing miscellaneous deductions to the following year.

Limits On Deducting Mortgage Interest Expense An expatriate may deduct the interest paid on a mortgage secured by a principal residence under the following guidelines: Interest on mortgages entered into prior to October 13, 1987, remain fully deductible; Acquisition indebtedness: Interest paid on a mortgage of not more than $1 million that is incurred in acquiring, constructing or substantially improving the taxpayer's principal residence; and Home equity indebtedness: Interest paid on a debt secured by a principal or second residence of not more than $100,000.

Investment Interest Expense Investment interest expense deductions are limited to net investment income, which is investment income minus investment expenses.

Investment income includes income from interest, dividends and short-term capital gains. Under current law, net long-term capital gains from the sale of investment property is not included in net investment income. However, capital gains from the sale of investment property may be included in net investment income to the extent an individual elects to reduce the amount of net capital gains eligible for the 28 percent maximum capital gains tax rate.

Investment expense includes all expenses directly connected with the production of investment income.

The tax advice given in this column is, by necessity, general in nature. You should, of course, check with your own US tax consultant about how specific transactions affect you since tax advice differs with individual circumstances.

James Paul Sabo, CPA, is the President of Expatriate Tax Services, P. O. Box 617, Bernardsville, NJ and is associated with Gulfstream Financial Ltd. in Bermuda.