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Fast forward to present day and you'll find millions of middle-income Americans are now getting snared by the AMT. The main reason the AMT now reaches into the pockets of the middle-class is because regular income tax brackets are indexed for inflation but the AMT thresholds are not. The result has been the steady expansion of households who find themselves hit by the AMT -- especially households with a large number of children, education credits, residential energy credit and/or state and local taxes.

Why haven't Americans been clamoring for an immediate overhaul to the AMT? Thus far, the full effects of the AMT have been deferred by Congress enacting a series of temporary patches -- boosting the amount of the AMT exemption.

The last temporary fix to increase the exemption, however, expired at the end of 2006. If Congress fails to ratify another provisional one-year increase in the next few months, the number of households paying the AMT will escalate exponentially from approximately 4 million in 2006 to nearly 23 million for 2007.  

To determine if a taxpayer owes tax under the AMT, filers must calculate their taxes under both the regular tax and AMT systems --- making the "Alternative Minimum Tax" tax a bit of a misnomer considering taxpayers must pay the higher of the two. The biggest factor impacting AMT filers is that they are no longer eligible to claim certain deductions and exemptions (i.e. education credits, child care credits, and the deduction for state and local taxes).  

Sound complicated? It can be if taxpayers don't plan ahead and use the tools that are available to them as a significant portion of taxpayers may be surprised when they are suddenly hit with a big tax bill, plus possible penalties come next April. Some planning tools are even free, such as the tool offered by 2nd Story Software, Inc., makers of the popular tax program TaxACT.

"It seems unlikely that lawmakers will fail to pass another patch to serve as a quick fix to hold down the reach of the AMT. Guessing wrong, however, could prove costly. Unfortunately, there are a vast number of factors that will trigger the alternative tax for any given taxpayer," says Stephanie Behrends, spokeswoman for 2nd Story Software.

"TaxACT Preview is a taxpayer's ally, allowing users to perform what-if scenarios to determine their estimated tax liability," she says. "Users simply need to step through the TaxACT interview entering their forecasted income and deductions for the tax year by answering simple questions in layman's terms. TaxACT simultaneously calculates your projected tax with the regular tax system and the AMT system based on the taxpayer's tax bracket and the most recent tax information available."  

Visitors need only to complete the site's free online registration to gain access to TaxACT's Online Deluxe Preview version. The tools available at www.taxact.com allow users to  generate a forecasted federal and state income tax refund or liability amount - which will provide  valuable insight into their tax situation. Once the final version of TaxACT releases in early January 2008, users can easily finalize their tax return and print and/or e-file their federal tax return for just $9.95.

Do you have more questions regarding the AMT and how it may impact you? More information is available at www.IRS.gov -- just enter keyword "AMT" or "Alternative Minimum Tax".

Courtesy of ARAcontent
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The survey, conducted by Harris Interactive on behalf of Countrywide Bank, FSB, the nation's third largest federal savings bank, shows that the majority of Americans who have both savings and checking accounts keep them at the same bank; they have never thought of having the accounts at separate banks, and have no automatic savings plan in place.

"Consumers are potentially leaving money on the table," says Pierre P. Habis, managing director for deposits and investment services at Countrywide Bank. "Serious savers view their savings accounts as 'one way' only, meaning they make more deposits than withdrawals. They succeed at this by keeping their transactional banking relationship at one bank and savings at another."

"We've found that if consumers' checking and savings are under the same roof, it's too easy to draw from that nest egg, and that's when savings stagnate," he adds.

So what are the three secrets of successful savers? Habis offers the following advice:

1. Separate

In the Harris survey, 71 percent of respondents said they keep their savings and checking accounts in the same bank. And 67 percent have never even considered separating their accounts. This, Habis says, can be a serious mistake.

Keep your primary savings and checking accounts at different financial institutions. This strategy may help you get the best rates, and will make it more difficult to dip into your savings - one of the worst saving mistakes people commit. Shop around for institutions that offer the best possible terms. It is possible that the institution that best meets your checking needs might not be suited for providing market-leading savings rates.

2. Automate

Sixty one percent of the respondents in the Harris poll do not automatically transfer or deposit a set amount into their savings on a regular basis. Paying yourself first is one of the hallmarks of a basic savings plan.  Habis recommends that consumers establish a savings plan, whereby a percentage of your income, or a set dollar amount, is automatically deposited into your savings account on a regular basis. "Start out by trying to allocate a small amount, perhaps even $20 per week to start, towards a high-yielding account," says Habis.

3. Shop for the Best Rate

If you're not sure what the annual percentage yield (APY) is on your savings account, how do you know if your money is working hard for you? According to the survey, 32 percent of adults with savings accounts don't know what the yield and corresponding interest rate is, and 45 percent know that it is less than 5 percent. To find the best rate, survey several banks and compare the APY on your savings accounts, money market accounts or certificates of deposit.

Avoid leaving money on the table by ensuring that your account has market-leading savings rates. Web sites such as www.bankrate.com help consumers identify the highest rates available in their market.

"As with any financial decision, consumers should carefully evaluate their options and fully understand the advantages and disadvantages before making a change," Habis says.  "Consumers can maximize their returns if they separate, automate and always seek the best rate."

Courtesy of ARAcontent
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