levy designed with the intent that everyone should pay a fair share of tax. As of tax year 2003, the exemption is $40,250 for single taxpayers and $58,000 for married taxpayers filing jointly. The tax rate is 26% for those taxpayers having up to $175,000 over the exemption amount and 28% for amounts exceeding $175,000. In the case of orporations, the AMT is tied to the regular taxable income adjusted for tax preference items. A 20% tax rate is then used.

federal tax aimed at ensuring that wealthy individuals, trusts, estates and corporations pay at least some income tax. For individuals, the AMT is computed by adding tax preference item to taxable income and making various adjustments to a taxpayer's regular taxable income. Taxpayers must calculate their tax obligations through the regular tax system and through the AMT system, and pay the greater of the two amounts.

The most common adjustments and tax preference items include

• addition of personal exemptions
• addition of the standard deduction, if claimed by the taxpayer
• addition of itemized deductions claimed for state and local taxes, certain interest, most miscellaneous deductions, and part of medical expenses
• subtraction of any refund of state and local taxes included in gross income
• changes to accelerated depreciation of certain property
• difference between gain and loss on the sale of property
• addition of income from incentive stock options
• change in certain passive activity loss deductions
• private activity bond interest earned
• addition of certain depletion that is more than the adjusted basis of the property
• addition of part of the deduction for certain intangible drilling costs

Taxpayers may have to pay the alternative minimum tax if their taxable income for regular tax purposes, combined with these adjustments and tax preference items, is more than $58,000 for married couples filing jointly, $40,250 for those filing as single or head of household, or $29,000 if filing singly and married on a separate return. The AMT tax rate on income up to $175,000 ($87,500 for a married couple filing separately) is 26% and 28% for income over $175,000.

Calculating the AMT can be extremely complex and is best left to a professional accountant.

a type of flat-rate tax that applies to taxpayers who have certain types of income or deductions. A 26% or 28% rate applies to broadly based income of individuals. A 20% rate applies to corporations. If this tax exceeds the regular income tax, then the alternative minimum tax is to be paid instead of the regular income tax.