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Escape the AMT Trap

The AMT is in limbo, but you don't have to be. Start planning now to avoid tax season surprises.

This story appears in the March 2008 issue of Entrepreneur. Subscribe »

The brouhaha in Washington, DC, in the final weeks of 2007 over the alternative minimum tax ultimately ended with the eleventh-hour passage of a one-year patch, meaning Congress will be back to debate the issue come tax season next year. The debate did, however, highlight two key points: The tax remains as controversial as ever, and it will impact an ever-growing number of people unless politicians revamp it entirely.

The insidious thing about the AMT is that traditional tax planning--maximizing deductions, deferring income and so on--only increases your odds of getting hit by this one. The AMT was developed by the IRS in the 1960s as a way to make sure the überrich, who were increasingly managing to avoid taxes, paid something each year. Everyone was thenceforth required to calculate both the traditional tax system and the AMT, and pay which-ever was higher. But nobody bothered to index the AMT thresholds for inflation, so what was designed for Richie Rich has become a worry for Blondie and Dagwood.

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