If you pay quarterly estimated state income taxes or have a real-estate tax bill due in January, you can pre-pay it this month and boost your deductions on your 2008 federal tax return. But beware. If you're among the growing number of taxpayers ensnared by the alternative minimum tax, this sooner-than-later strategy won't work for you.
The AMT is a parallel tax system with its own set of rules. Originally designed to make sure wealthy people could not use legal deductions and loopholes to drive their tax bill to zero, the AMT is now increasingly affecting the middle class.
The AMT does not allow deductions for state and local taxes, home-equity loan interest (unless the borrowed money was used for home improvements), or items such as investment expenses. Nor does it allow personal exemptions -- worth $3,500 this year -- for yourself, your spouse and each of your dependent children. So you pay taxes on a larger portion of your income even though the AMT rates of 26% and 28% may be lower than your regular tax rate.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Essentially, you have to figure your taxes under two sets of rules -- the regular tax code and the AMT -- and pay whichever is higher. Regular tax brackets are indexed for inflation but the AMT isn't. Consequently, your chance of being trapped by the AMT increases each year, particularly if you claim large deductions for state income taxes or property taxes or have a large family.
For the past several years, Congress has approved temporary patches to boost the income level of taxpayers subject to the AMT. This year was no exception. As part of the $700-billion economic rescue package, Congress approved a one-year patch that increases the AMT exemption to $69,950 for married couples and $46,200 for individuals.
The new higher exemption levels will prevent about 21 million new taxpayers from being hit by the AMT in 2008. But it’s a safe bet that if you’re among the more than three million taxpayers who paid the so-called "stealth tax" last year and your financial situation hasn’t changed substantially, you'll probably be caught again this year.
-
3 Ways High-Income Earners Can Maximize Their Charitable Donations in 2025Tax Deductions New charitable giving tax rules will soon lower your deduction for donations to charity — here’s what you should do now.
-
An HSA Sounds Great for Taxes: Here’s Why It Might Not Be Right for YouHealth Savings Even with the promise of ‘triple tax benefits,’ a health savings account might not be the best health plan option for everyone.
-
New RMD Rules: Can You Pass This Retirement Distributions Tax Quiz?Quiz Take our RMD quiz to test your retirement tax knowledge. Learn about RMD rules, IRS deadlines, and tax penalties that could shrink your savings.
-
Ten Retirement Tax Plan Moves to Make Before December 31Retirement Taxes Proactively reviewing your health coverage, RMDs, and IRAs can lower retirement taxes in 2025 and 2026. Here’s how.
-
When to Hire a Tax Pro: The Age Most Americans Switch to a CPATax Tips Taxpayers may outsource their financial stress by a specific age. Find out when you should hire a tax preparer.
-
The Original Property Tax Hack: Avoiding The ‘Window Tax’Property Taxes Here’s how homeowners can challenge their home assessment and potentially reduce their property taxes — with a little lesson from history.
-
Social Security Tax Limit Rises Again: Who Pays More in 2026?Payroll Taxes The Social Security Administration has announced significant changes affecting millions as we approach a new year.
-
Three Critical Tax Changes Could Boost Your Paycheck in 2026Tax Tips The IRS predicts these tax breaks may change take-home pay in 2026. Will you get over $1,000 in tax savings?
