Taxpayers love deductions and credits -- and why not? The number of deductions and credits in the Tax Code allows you to reduce your taxable income and tax due.

But what if you could deduct everything? What if your super pricey home meant your home mortgage interest deduction was sky high? Or if you paid exorbitant real estate taxes because of where you chose to live? Or if your miscellaneous itemized expenses related to your job were insanely expensive?
At one point, it was possible to be a wealthy taxpayer and take advantage of so many tax breaks in the Tax Code that you actually owed less tax than someone making a fraction of your salary.

In fact, according to the Washington Post, in 1967, 155 taxpayers with incomes over $200,000 did not pay any federal income taxes (indexed for inflation, $200,000 is roughly equivalent to $1.3 million today).

With that in mind, under the Nixon administration, a new tax item was introduced as part of the Tax Reform Act of 1969 to target those high-income households that appeared to benefit from too many tax breaks.

Since 1969, the Alternative Minimum Tax has changed very little. The income threshold is not indexed for inflation, so each year more and more taxpayers are affected. Congress hasn't bothered to fix the problem; instead, it has been pushing through an annual "patch" to up the amount at which the AMT kicks in.

For 2009, the exemption amount has increased just a few hundred dollars to $70,950 for married couples and $46,700 for individual taxpayers -- substantially less than the initial targets for the tax.

Generally, you may be subject to the AMT if your taxable income for "regular" tax purposes plus any adjustments and tax preference items results in an amount higher than the AMT exemption amount. If the AMT applies, you must separately figure a second tax by eliminating many deductions and credits. You pay whichever is higher -- the "regular" tax or the AMT.

Key triggers for the AMT include claiming multiple personal exemptions; high state and local taxes, including property tax, income tax and sales tax; interest on second mortgages; extraordinary medical expenses; unusually high miscellaneous itemized deductions; and participation in a tax shelter.

That said, perhaps the most well known tax item that causes you to be subject to the AMT is related to income, not deductions or credits. Exercising a significant incentive stock option (ISO) will almost certainly trigger the AMT. This is an unwelcome trap for taxpayers who might have accepted ISOs in lieu of cash; you'll want to take this into account when negotiating employment and compensation agreements.

If your income is above the exemption amount and think you might be subject to the AMT, complete form 6251, Alternative Minimum Tax - Individuals (you can download the form). You can also try an electronic version of the form on the IRS Web site.

The complexity of the AMT lends itself to the use of tax preparation software or a tax professional to help you complete your return; it's a very difficult concept to try and calculate from scratch on a paper return.

This is one of the reasons the National Taxpayer Advocate continues to refer to the AMT as one of the most serious issues facing taxpayers. The NTA urges repeal of the AMT, noting that 33 million taxpayers will be affected by the tax in 2010. Repeal of the AMT, however, does not appear to be a priority in Congress.