You're at risk of being subjected to the dreaded alternative minimum tax, a little-known form of federal taxation that is creeping up on an increasing number of Americans. The number of taxpayers subject to the AMT has more than quadrupled in the past decade. The alternative minimum tax was instituted in the late 1970s, when top tax rates hit 90 percent and numerous tax shelters offered huge write-offs for the wealthy. The aim of the AMT was to ensure that wealthy people actually paid tax, regardless of how cleverly they sheltered their income. To achieve this, Congress created a separate, parallel system that removes a number of itemized deductions but imposes tax at a lower rate.
Taxpayers then use the two forms to compare their liability and pay whichever tax is higher.
In reality, many taxpayers have never heard of the AMT and few bother to calculate it. Congress was targeting. Deductible medical and dental expenses. Incentive stock options. A home equity loan that was used not to improve your property, but to buy other items, such as a car or boat, or to pay off other bills.