You are likely well aware that our nation is approaching a “fiscal cliff,” which is the expected economic effect of the increase in taxes and broad-based spending cuts beginning in 2013. While most of us are concerned with the expiration of the Bush-era tax rates, the reality is these will not affect tax returns until 2014. The more pressing concern is the alternative minimum tax “patch” that expired at the end of 2011.

Alternative minimum tax is a tax that some have to pay in addition to their regular income tax. The alternative minimum tax is a recapture mechanism, reclaiming tax breaks allowed by the IRS. It was created to prevent high-income earners from using deductions, credits and other tax breaks to pay little to no federal income tax. However, AMT has never been indexed to inflation like our regular income tax brackets. Thus, every year more people become subject to the AMT.

Congress passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, extending the Bush tax cuts for two years. The Act also patched the exemptions to the AMT for tax year 2011. Without further congressional help, the exemption reverts to $45,000 for married taxpayers filing jointly, and $37,750, for individuals or head of household for 2012.

It is projected that for 2012, more than 31 million Americans will be paying AMT or will have AMT limits on tax credits. In comparison, around 4 million paid $39.1 billion in AMT in 2011. Without a 2012 patch, nearly 28 million more taxpayers could bump AMT revenue to $145.9 billion, according to the Tax Policy Center. This is far more in taxes than the 15 percent and 20 percent capital gain rate spread. According to the Congressional Research Service, the expiring capital gains tax break amounts to about $71 billion a year.

There are no specific tests to determine if you are liable for AMT. If you do not itemize deductions, you are not affected. At minimum, if you own a home, and pay state income taxes and real estate taxes, you should consider talking with a tax professional. These are some of the few, but obvious, deductions that may cause you to pay AMT. You must first figure your regular income tax. Then, determine whether tax benefit items must be added back to your taxable income to calculate AMT. If your regular income tax liability is less than your AMT liability, the difference is reported as an additional tax on your return. You are liable for either the AMT or the regular income tax, whichever amount is higher.

When you pay AMT, the amount of the tax paid is allowed as a credit against your regular tax liability in subsequent years. However, the credit cannot be used to reduce the tentative minimum tax in subsequent years. The minimum tax credit applies only to the AMT created as a result of deferred preference items.

AMT, potentially, affects every income tax planning strategy. Taxpayers must focus not only on their income tax strategy, but now reducing the impact of their AMT.