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Investors: Watch out for these 5 AMT traps

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in Small Business Tax

With the alternative minimum tax (AMT) becoming a maximum nuisance for many taxpayers, it’s smart to recognize the AMT danger zones early.

But the AMT “stealth tax” can also blindside investors who normally don’t face AMT problems. If you’re not careful, you may fall victim this year, even if you qualify under other typical AMT categories.

Reminder: The AMT runs on a separate track alongside your regular income tax calculation. Start with your annual taxable income. Next, add in special tax preference items and make other adjustments. Then, subtract an AMT exemption amount based on your filing status ($45,000 for joint filers, $33,750 for unmarried filers in 2006).

Finally, apply the AMT rate to the remaining income and compare it to your regular tax liability. Then, pay the higher of the two. (The AMT rate is 26 percent for the first $175,000 of AMT income, 28 percent above that mark.)

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