Today, more than 2 million taxpayers incur alternative minimum tax liability, and unfortunately, most experts expect this number to climb sharply over the coming years. Some even project that by 2010 one-third of us will be hit by the AMT.

So what is the AMT? The AMT is an alternate tax computation with separate, specific rules. Under these rules, most of the deductions used in computing regular taxable income are not allowed. At the same time, certain items that are excluded when computing regular taxable income are included for AMT purposes. Thus, taxable income under the AMT will usually differ significantly from regular taxable income.

Furthermore, the AMT is based on a flat rate of either 26 or 28 percent, rather than on the progressive tax rates used to calculate regular income taxes. Ultimately, if the amount of tax you owe under the AMT is greater than what is due under the regular tax, you must pay the larger amount.

If you suspect that the AMT may be an issue for you, you should contact a professional, because not only is the AMT difficult to compute, it also completely alters your tax planning strategies.

Some red flags that could mean you may owe the alternative minimum tax include the following:

• You have incentive stock options.

• You invest in real estate.

• You have large, unreimbursed business expenses.

• You pay high state and local taxes.

• You have a large number of dependents.

• You have interest from a home-equity loan, and you did not use the loan proceeds to improve your home.

• You have substantial holdings in private-activity bonds.