| Alternative Minimum Tax (AMT) is meant for catching | | | | available under normal income tax provisions if the total |
| people who avoid paying taxes claiming extensive tax | | | | deductions make up more than two per cent of your |
| breaks. The number of people affected by AMT is | | | | adjusted gross income (AGI). These deductions include |
| estimated at 25 million. Under the provisions of AMT, if | | | | un-reimbursed expenses from the employer, fees paid |
| your income goes above a threshold, then there is a | | | | towards preparation of your tax return, and expenses |
| cap on the deductions available to you and you end up | | | | relating to investments. If you claim a large amount of |
| paying more taxes. | | | | deduction in this category, that can lead to trigger your |
| Look at the following reasons which trigger your AMT | | | | liability to pay AMT. |
| liability: | | | | 7. Intensive stock options - when you exercise an |
| | | | intensive stock option, you need not report that on |
| 1. The exemptions you claim - If you claim more and | | | | your regular income tax return. However, it is bound to |
| more tax exemptions for yourself and your spouse as | | | | trigger your liability to pay AMT. The only solution is |
| well as your dependents, you are likely to get AMT | | | | you should sell the stock during the same year! |
| liability. | | | | 8. Long-term capital gains - If you have a large capital |
| 2. The standard deduction - More than 70 per cent of | | | | gain, it is possible to get stuck with the liability of AMT. |
| the Americans prefer to claim the standard deduction | | | | This is because a huge capital gain will reduce the |
| rather than to go for itemizing. This deduction can | | | | AMT exemption amount. |
| contribute to AMT liability because the standard | | | | 9. Exempt interest - Some types of interests which |
| deduction is not allowed under AMT | | | | are exempt from income tax may or may not be |
| 3. State and local taxes - If you are claiming | | | | exempt from the AMT liability. This is because of |
| deductions for state taxes and local taxes, these | | | | many complicated rules on interest on bonds. If your |
| deductions are not allowed under AMT. So if you | | | | investment in bonds is not exempt under the AMT, it |
| reside in a place where the state and local taxes are | | | | may lead to AMT liability for you. Even a lot of mutual |
| higher, then it is likely that you will be subject to AMT. | | | | funds invest in bonds which are not exempt under the |
| 4. Interest on second mortgages - AMT does allow a | | | | AMT. If you receive interest from such funds, you may |
| deduction towards interest on mortgages used to buy | | | | attract AMT liability. |
| or a build your home. However if you take loan against | | | | 10. Use of tax shelters - There are still some tax |
| your home for any other purpose, such interest is not | | | | shelters available like investing in specific types of |
| allowed as a deduction under AMT. | | | | partnerships or limited liability companies involving |
| 5. Medical expenses - AMT does allow for a | | | | activities like oil and gas drilling. Under AMT provisions |
| deduction of medical expenses. However such a | | | | the tax benefits are reduced for these activities. You |
| deduction is more restrictive than the one under the | | | | should always check the AMT consequences before |
| regular income tax. If you happen to claim a deduction | | | | investing in such ventures. |
| for medical expenses as an itemized deduction, it is | | | | To sum up, you should keep in mind these important |
| likely that part of it or all of it may be disallowed when | | | | causes while making your financial decisions. Neglecting |
| you calculate your tax with AMT. | | | | them will end up in paying higher taxes. |
| 6. Miscellaneous deductions - Certain deductions are | | | | |