The alternative minimum tax (AMT) doesn’t appear to be going away anytime soon. According to one estimate, the number of individuals paying the AMT in 2010 could jump to more than 30 million.
Strategy: Determine if you could be hit by this “stealth tax” for the first time this year. In particular, investors may be blindsided.
How it works: The starting point for the AMT is your annual taxable income. Next, special “tax preference items” are added and other technical adjustments are made. Then you subtract a special exemption amount based on your tax filing status.
Finally, the AMT rate is applied to the remainder and compared to your regular tax liability. You effectively pay the higher of the two. The AMT rate is 26% for the first $175,000 of AMT income; 28% above that mark.
Increased investment activity could push you into the danger zone. Here are five prime examples:
1. Capital gains and dividends: For...(register to read more)