In addition to staying up-to-date on tax rates for ordinary income and investment gains, you may want to be aware of the federal Alternative Minimum Tax (AMT), established more than 30 years ago to ensure that the wealthiest U.S. taxpayers could not use certain deductions and credits to avoid paying income tax entirely. The AMT, which uses a separate set of rules from the regular income tax system and can mean higher taxes for some, was never indexed for inflation. As a result of recent reductions in the regular income tax system, the AMT is affecting an increasing number of taxpayers. A variety of factors, including the amount or type of personal exemption credits and deductions used, can trigger the AMT.
While the AMT is not subject to an inflation adjustment, the AMT exception amount has been increased as of December 2007 for the 2007 tax year. Unless Congress acts, beginning in the 2008 tax year, the AMT exemption levels will revert back to those in effect for 2000. Members of Congress are aware of the issue and the topic is currently being debated. It is unclear whether or how it may change for the 2008 tax year and later years. The numbers shown here reflect the alternative minimum taxable income amounts exempt from the AMT under current law.
For 2007, federal tax rules permit an exemption from the AMT for the first $66,250 of income for married couples filing jointly and the first $44,350 for single filers.
Consult your tax professional for information about the AMT and how it relates to your situation.