Are your federal taxes higher than you expected? The culprit may be the alternative minimum tax, or AMT. The AMT is a second method for calculating your tax liability, and because the rules are different, it catches many taxpayers unawares.

In principal, the AMT sounds straightforward. Under the AMT rules, you have a much higher exemption amount ($66,250 for married couples) in lieu of the standard deduction, personal exemptions, and certain itemized deductions. Income over this AMT exemption amount is then taxed in two tax brackets: 26% and 28%. This creates a "flatter" tax compared to the six tax brackets under the regular tax system.

The problem comes in that many deductions that are allowed for the regular tax are not allowed against the AMT. State and local taxes, such as withholding from paychecks and real estate taxes, are not allowed for AMT. Also, miscellaneous deductions for safe deposit boxes, IRA custodial fees, tax preparation fees, and unreimbursed business expenses are not allowed for AMT. The result is often that the higher your itemized deductions go, the higher your AMT may be as well.

The only way to figure out how the AMT is impacting your tax situation, is to review the AMT calculations in your tax software program, or ask your accountant to show you which deductions are causing the biggest impact.