AMT Facts:

The Urban-Brookings Tax Policy Center says the AMT will hit 3.6 million out of the nation’s 131 million taxpayers filing for tax year 2005 (filed in early 2006), and could affect 31 million by 2010 if nothing is done.

The alternative minimum tax is an extra tax some people have to pay on top of the regular income tax. The original idea behind this tax was to prevent high income people from using special tax benefits to pay little or no tax. But for various reasons the AMT reaches more people each year, including some people who don’t have very high income and some people who don’t have lots of special tax benefits. Congress is studying ways to correct this problem, but until it does, almost anyone is a potential target for this tax. Many people will get hit with this tax in 2008 if the Congress doesn’t do something about it. The problem is that if they wait much longer it will be very hard for the IRS to implement this new code into their system. It takes 3-6 weeks to implement new code into the system and we are running out of time for the 2007 taxes which are due in 2008.

The AMT provides an alternative set of rules for calculating your income tax. In theory these rules determine minimum amount of tax that someone with your income should be required to pay. If you’re already paying at least that much because of the “regular” income tax, you don’t have to pay AMT. But if your regular tax falls below this minimum, you have to make up the difference by paying alternative minimum tax.

You can have AMT liability because of one big item on your tax return, or because of a combination of many small items. Some things that can contribute to AMT liability are mundane items that appear on many tax returns, such as a deduction for state income tax or interest on a second mortgage, or even your personal and dependency exemptions.

See Top Ten Things that Cause Alternative Tax Liability.

If you use computer software to prepare your tax return, the program may be able to do the AMT calculation. If you’re preparing a return by hand, the only way to know for sure is to fill out 6251 Form in PDF Format and Instructions in PDF Format — which is a tough process.

Checkout these sites on the alternative minimum tax:

IRS Alternative Minimum Tax

Wikipedia on AMT

SmartMoney on AMT

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