Adjusting Alternative Minimum Tax could spare 20 million taxpayers

October 1, 12:42 PMBusiness ExaminerDarrell Proctor

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A closely watched part of the revised Wall Street bailout bill is a provision to adjust the Alternative Minimum Tax, that nasty part of the tax code that hits an ever-growing number of middle-class taxpayers each year.

The AMT was designed to make sure everybody pays some tax. It eliminates deductions and credits that some folks could use to greatly reduce their tax bill. Trouble is, it was originally designed to make sure "wealthy" taxpayers didn't escape their tax burden.

Of course, the definition of "wealthy" in 1969 - when the AMT became part of the tax code - was much different than it is today. Analysts say adjusting the tax could spare 20 million taxpayers from an AMT burden for 2008.

What are red flags for taxpayers? These circumstances currently are likely to trigger the AMT:

• If your gross income is above $100,000.
• If you have large numbers of personal exemptions.
• If you have significant itemized deductions for state and local taxes, home equity loan interest, deductible medical expenses, or other miscellaneous deductions.
• If you exercised incentive stock options (ISOs) during the year.
• If you had a large capital gain.
• If you own a business, rental properties, partnership interests, or S corporation stock.

If any of the above apply to you, you should complete the AMT worksheet when preparing your taxes. The IRS takes a dim view of folks who owe more tax than they pay - and if you owe AMT but don't pay it, the IRS will add penalties and interest. It can also trigger an audit.