Did you know that one of the single largest expenses facing American taxpayers is tax? Sounds crazy, but it's true -- taxes can take the single largest bite out of your budget.

The biggest and baddest tax of them all is called AMT (alternative minimum tax). It's a tax system that was originally intended to make sure even the wealthiest taxpayers contributed something. However, poor planning meant that AMT never truly hit its target, and over the years design flaws have changed AMT into a tax that hits middle class taxpayers with children the hardest.

Our regular tax system works on a sliding scale: the more you earn, the more you pay. AMT, however, is an alternative tax system. It is based on a flat-tax, which is assessed once your income hits a certain threshold. The problem is those thresholds weren't designed to move with inflation, but are instead moved only by an Act of Congress, and the last Act to make permanent changes was passed in 2001. Since then Congress has made several temporary "patch" inflation adjustments, which expire at the end of each year. The last "patch" expired on December 31, 2006, meaning that right now the AMT thresholds are back to 2001 levels: $45,000 for a married couple, filing jointly, $33,750 for a single taxpayer and $22,500 for couples who are married, filing separately.

So who gets hit? Well, according to some statistics, without a patch this year, approximately 23.4 million U.S. taxpayers will be filing under AMT rules at tax time next year. About 33 percent of that number will be taxpayers with three or more children and another 30 percent will be married filers. Almost three quarters of all married couples with two children and incomes between $75,000 and $100,000 will be subject to AMT. People who will get hit hardest will be those who:

• Claim a large number of exemptions;

• Itemize deductions and claim large deductions for taxes and/or miscellaneous deductions subject to the 2 percent of AGI (adjusted gross income) limit;

• Take out a home mortgage or equity line of credit and don't the money to buy, build, or substantially improve their homes; and

• Exercise incentive stock options and don't sell the stock in the same year.

The government is aware of the problem. In fact, it's on the Democrats' "to-do" list, according to statements made after last fall's elections. But fixing things will be expensive. For example, just by issuing a new inflation patch Congress stands to lose an estimated $50 billion this year. Fixing AMT permanently could cost as much as $1 trillion over the next 10 years, according to some experts. Given the appetite for money in Washington, reform seems unrealistic. Most industry analysts seem to believe that this year will be another "patch" year, and I tend to agree.

AMT is a flat-tax amount calculated at 26 percent on the first $175,000 of your income ($87,500 for those of you who are married, filing separately), and increases to 28 percent for income above that amount. But AMT was designed to disallow passive losses from tax shelters, depreciation of property and tax-exempt interest, among other things, meaning you lose many of the deductions you had before. It's especially bad if you live in a high-tax state like California or New York, because you lose the ability to deduct state income, sales, and property taxes. Some studies estimate that 90 percent of taxpayers paying AMT now are paying it because they live in a high-tax state. The more you make, the worse it gets. As your income exceeds $150,000 for married filing jointly ($112,500 for single and $75,000 for married filing separately) your AMTI exemption shrinks to almost nothing.

If you want to find out whether you might be one of those taxpayers, take the AMT Test you'll find at the end of this month's Special Report (which is available free of charge at this website ). This report will help you determine if you'll need to complete Form 6251 (for AMT reporting) and possibly become subject to AMT. Even if you aren't subject to the tax you may still need to file Form 6251.

You'll also find in this special report a series of 12 tax-saving strategies to help you escape the AMT trap. Owning your own business features prominently - for example, did you know that while AMT is supposed to affect business and personal taxpayers, in reality most businesses are exempt? Business ownership, combined with maximizing pension plan contributions may be the single greatest weapon taxpayers have against the AMT threat.