How to calculate the AMT, a tax we love to hate
Although almost everyone denounces it, the AMT is a big moneymaker for Uncle Sam, collecting more than $22 billion from four million taxpayers for 2008 alone. Congress has not found a replacement for this lucrative revenue raiser. Since 2001, however, lawmakers have approved a temporary patch each year to protect more than 20 million additional taxpayers from being snared by it.
For 2009, the exemptions were increased to $46,700 for single taxpayers and heads of household, $70,950 for married couples filing joint returns, and $35,475 for married couples filing separately.
The AMT is a parallel tax system. Every taxpayer is responsible for paying the higher of the regular tax or the minimum tax. Essentially, it means you have to do your taxes twice. First, you have to figure your regular federal tax and then calculate the AMT. If the minimum tax is higher, the difference between the two tax rates is added to your Form 1040 as an additional alternative minimum tax.
Because the AMT disallows deductions for most state and local taxes and personal exemptions for you, your spouse and each of your dependents, you could end up paying taxes on more of your income. However, if you bought a new car after Feb. 16, 2009, you can still claim the special sales-tax deduction, even if you pay the AMT.
Exercising incentive stock options is another common AMT trigger, requiring you to prepay the tax on your paper profit. If the stock plunges in value before you can sell it, the AMT has to be paid, although you can later recoup offsetting tax credits.
Although you can still deduct medical expenses, home-mortgage interest and investment interest under the AMT, different rules apply. For example, you can deduct only those out-of-pocket medical expenses that exceed 10 percent of your adjusted gross income compared with a 7.5 percent threshold under regular tax rules.
-- Kiplinger's Personal Finance