Fast-forward to 2008. The Urban Institute Tax Policy Center estimates that because of higher incomes and bracket creep, some 36 million Americans will be subject to the AMT that year under current laws.
If you haven't seen your planned tax refund turn into a tax payment, be patient. Your time will come. Virtually every method you have used to reduce your federal income tax works against you if you come under the AMT umbrella.
How do you know if you're subject to the AMT? For most Professional Builder readers, taxes must be calculated two ways: the regular way and the AMT way. If the AMT is higher, the difference in taxes you pay is essentially your alternative minimum tax. Think of the AMT as a parallel income tax.
Now think of all those deductions you love to find on April 14: itemized deductions (for example, employee business expenses), personal exemptions, medical expenses, and state and local taxes. In terms of the AMT, assume they'll all amount to zero. In fact, large capital gains can hurt you more than the 15% long-term capital gains tax. And incentive stock options from a publicly traded company? Be prepared to really pay. Bottom line: The more deductions you have, the more you will pay.
Is there any good news? Well, you can help yourself by paying more local and state taxes in years when you won't be subject to the AMT. If you pay them when you are subject to the AMT, local and state deductions are not deductible. Remember, you can prepay taxes, and those deductions, when useable, are taken in the year the taxes are paid.
Use the same principle with large medical expenses. While they must exceed 10% of adjusted gross income to qualify as an AMT deduction, try to time when they are paid. Arguably, this works best when a family member suffers a costly illness at the end of the year, allowing you to choose whether to prepay the medical bills in December or postpone them until January. The same holds true for miscellaneous itemized deductions, which are not deductible under the AMT.
And speaking of timing, try to time the sale of stock. Capital gains can help trigger the AMT; postponing stock sales might help avoid it.
Finally, if you are awarded incentive stock options, be very careful. The bargain element of ISOs - the difference between your exercise price and the fair market value of the stock on the exercise date - is considered a tax preference in AMT calculations. That's bad.
For more information on the AMT, log on to www.irs.gov  and search for Form 6251. Use the worksheet to get a better understanding of the tax and its potential impact on you.
But don't stop there. Be certain you have a relationship with an accountant well-versed on the AMT, for this is one area in which tax professionals really can earn their fees.