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YOUR MONEY

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CREDIT, COLLEGE, TAXES AND REAL ESTATE

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Caught by the AMT
No one wants to fall prey to the alternative minimum tax, but this silly attempt to sidestep it could actually cost you more money.

As more and more Americans get caught by the alternative minimum tax, there's more and more attention on how to avoid it. This year, for example, an estimated 4 million taxpayers will owe the AMT when they file their 2007 returns.

The AMT is a parallel tax system created more than 40 years ago to ensure that the very wealthy pay at least some tax. But because it never was indexed for inflation, the AMT has expanded to the middle class. The system requires millions of Americans to calculate income taxes under two sets of rules and pay the higher tax bill.

One good thing you can say about the AMT, however, is that Congress made it awfully difficult to get around. And, attempts to do so could cause more financial pain than they avoid.

One reader in Illinois, for example, asks a very simple question: If high itemized deductions can trigger the AMT, is it legal to skip some of your write-offs to sidestep the stealth tax?

Sure you can ignore deductions, but you'd be shooting yourself in the foot. You owe the AMT only when it costs more than the regular tax. If skipping legitimate write-offs drives your regular tax bill above the AMT amount, you beat the AMT -- but you wind up paying more tax.

Here's a money-saving tip: Claim all your deductions.


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