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Beware the Complicated and Costly AMT
Bankrate.com | March 31, 2010 | 01:45 PM EDT

Three letters, AMT, are striking tax fear in the hearts of more and more middle-class filers.

These folks are simply trying to use the tax code, legally, to lower their annual Internal Revenue Service bills. They claim exemptions for eligible dependents, deduct the interest on their mortgage and associated equity loan, and write off the state income taxes they pay. Some of these tax breaks, however, will do them no good under the alternative minimum tax system.

Commonly referred to as the AMT, this tax has its own set of rates (26 percent and 28 percent) and requires a separate computation that could substantially boost your tax bill. Basically, it's the difference between your regular tax bill, figured using ordinary income tax rates , and your AMT bill, figured by filling out more IRS paperwork. When there's a difference, you must pay that amount, the AMT, in addition to your regular tax.

The AMT was designed in 1969 to ensure that wealthy taxpayers didn't use loopholes to escape paying their fair share of taxes. The original target was 155 filers with the then-exorbitant income of $200,000 who avoided paying any federal taxes.

More AMT victims, higher taxes

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