Sooner or later, the alternative minimum tax (AMT) is probably going to get you.
Strategy: Do your best to dodge this “stealth tax.” At the very least, you may be able to reduce your AMT liability for 2012 with some advance planning.
5 steps for figuring the tax
First, let’s briefly explain how the AMT works. In essence, you’re required to run parallel calculations of your regular income tax liability and AMT liability. Then you must effectively pay the higher of the two.
There are five steps for computing AMT liability:
1. Figure out your taxable income for regular tax purposes.
2. Add designated “tax preference” and “adjustment” items to this figure (see box below).
3. Subtract a special exemption amount based on your filing status. This is one of the areas where Congress has patched the law in recent years.
4. Apply the AMT rate to the net amount. The AMT rate is 26% for the first $175,000 of AMT income; 28% for AMT income...(register to read more)