Perhaps you have heard of this “stealth tax,” but do not understand how it may affect you personally.

It has been around for decades, and every year the U.S. Congress throws a patch on the problem but never addresses a permanent fix. It was passed decades ago to target a handful of high-income Americans who managed to make millions of dollars and paid no federal income tax. It was deemed that they should not be allowed to shelter all of their income and that some of it should be taxed to help run our government. But my, how this common-sense idea has changed over the years!

The AMT now applies to some people who don't have very high income or who don't claim lots of special tax benefits. Proposals to repeal or reform the AMT have languished in Congress for years, but effective action does not appear to be on the horizon. Until Congress acts decisively, almost anyone is a potential target for this tax.

A patch passed last year to remedy the problem still impacted four million Americans, slightly more than the few millionaires originally targeted. If no better patch is enacted before the end of this year, an estimated 27.4 million taxpayers will be subject to this tax, few of whom are the non-taxpaying millionaires originally targeted.
 
The AMT has many rules that differ from the regular tax code. For example, if you fall under the AMT you lose deductions for state and local taxes; the standard deduction and personal exemptions also fall by the wayside.
Failing to address the AMT issue this year, Congress recently adjourned for the elections. When it returns in November it will either pass another patch or postpone discussion until next year. We’ll all be waiting for the news!
 

Alternative Minimum Tax Amounts For 2010

Status

Single

Married JOINT

Married SEPARATE

Trust

Corporation

Tax Rate: Low

26%

26%

26%

26%

20%

Tax Rate: High

28%

28%

28%

28%

20%

High Rate Starts

$175,000

$175,000

$87,500

$87,500

n/a

Exemption 2010

$33,750

$45,000

$22,500

$22,500

$40,000

Exemption phase out starts at

$112,500

$150,000

$75,000

$75,000

$150,000

Zero 2010  exemption at

$247,500

$330,000

$165,000

$165,000

$310,000

Capital gain rate

25%

25%

25%

25%

20%

In addition, corporations with average annual gross receipts less than $7,500,000 for the prior three years are exempt from AMT, but only so long as they continue to meet this test. Further, a corporation is exempt from AMT during its first year as a corporation.

 SOURCES: http://www.fairmark.com/amt/amt101.htm, http://en.wikipedia.org/wiki/Alternative_Minimum_Tax