Meet the Enemy

With the number of people falling prey to the alternative minimum tax climbing fast, it may be time to familiarize yourself with Form 6251

If filling out the standard 1040 income-tax form seems tortuous, wait until you encounter Form 6251, which computes the alternative minimum tax. You do it after you've done the 1040, and it makes you recalculate your tax bill using a different and generally more complex set of rules. You then pay whichever amount is higher.

Perhaps you've been able to ignore Form 6251 before, but no more. This levy is bearing down on more and more taxpayers -- an estimated 3.4 million in this spring's filing season. If nothing is done to change the AMT, it will be a bulwark of the tax system by 2010, when it hits 30 million filers.

Here we walk you through the AMT form, highlighting the portions applicable to the greatest number of taxpayers. Part I takes several cherished deductions and exemptions from the 1040 and adds them back to taxable income. Part II calculates what you owe under the AMT. Investors will not be able to do that without a detour to Part III (not shown), which incorporates capital gains and dividend income.

Mercifully, this section is 10 lines shorter this year than last. That's because 2003's form had to contend with a midyear shift in the capital-gains tax rates, says Fred Grant, director of tax content at TaxNet, an Internet-based income tax software company.

By Anne Tergesen in New York

Before it's here, it's on the Bloomberg Terminal. LEARN MORE