The alternative minimum tax (AMT) is an extra tax that certain taxpayers must pay in Quickly Coupling addition to their regular income tax. The purpose of the AMT is to prevent taxpayers with substantial income from using tax "loopholes" (such as certain exclusions, deductions, and credits) to pay little or no tax. Through the AMT, these taxpayers must pay at least a minimum amount of tax. The AMT is based on an alternative set of rules for calculating income tax.

A separate accounting method is used to govern the recognition and timing of income and expenses. If you're subject to the AMT, you must compute both your regular tax and your AMT. If your AMT liability is greater than your regular income tax liability, the difference is reported as an additional tax on your federal income tax return. In effect, you're liable for either the AMT or the regular income tax, whichever amount is higher.Generally, AMT may apply to individuals earning more than $40,250. AMT also applies to people who have a large amount of standard or personal exemptions, exercised incentive stock options, who take a net operating loss deduction, who have certain other types of income, or claimed certain business-related tax credits.

AMT is calculated using Form 6251 and the Instructions for Form 6251.Taxpayer incomesThe AMT's failure to index for inflation is widely conceded as a flaw across the political spectrum. In 2005, the Urban-Brookings Tax Policy Center and the Treasury Department estimated that around 15% of households with incomes between $75,000 and $100,000 must pay the AMT, up from only 2-3% in 2000, with the percentage increasing at high incomes. That percentage is set to increase quickly over the coming years if no change is made such as indexing for inflation. Currently, households with incomes below $75,000 are subject to the AMT only very rarely (and thus most tax advisors do not recommend computing AMT for such households). That is set to change in only a few years, however, if the AMT remains unindexed.AMT preferences and adjustmentsCertain tax benefits available under the regular tax system--such as miscellaneous itemized deductions and the deduction of state income taxes paid--are reduced or eliminated when computing your alternative minimum taxable income (AMTI). Therefore, these tax benefit items--called AMT preferences and adjustments--can generate AMT liability. You must list these tax preferences and adjustments on Form 6251, and they must be added to or subtracted from your regular taxable income (before personal exemptions) to arrive at your AMTI. How is the AMT calculated?

The AMT is calculated by adding back certain deductions and certain exemptions to your adjusted gross income to determine your alternative minimum taxable income.Unlike the regular income tax, the AMT does not allow deductions for personal exemptions and state and local income taxes, to name just a few of the differences. There are some precautions you can take to plan ahead for the alternative minimum tax. By using tax-planning software throughout the year, you can minimize your overall tax liability. Study the 6251 form each time you prepare your tax return and see how close you are to paying alternative minimum tax. Work out how close your TMT is to your regular tax. Also, check last year's tax return for any business credits that are being carried forward; if there are any, this many be due to the TMT tax limit.Find more about AMT visit www.halfvalue.com and www.halfvalue.co.ukFor more details on Books at www.lookbookstores.com

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