Alternative Minimum Tax - AMT

AAA

DEFINITION of 'Alternative Minimum Tax - AMT'

A tax calculation that adds certain tax preference items back into adjusted gross income. Alternative minimum tax (AMT) uses a separate set of rules to calculate taxable income after allowed deductions. Preferential deductions are added back, and then the AMT exemption is subtracted to get the AMT taxable income (AMTI). AMTI is then taxed at the current rate schedule to get tentative minimum tax (TMT). If TMT is higher than the regular tax liability for the year, the regular tax and the amount by which the TMT exceeds the regular tax are paid (i.e. the taxpayer pays the full TMT).

INVESTOPEDIA EXPLAINS 'Alternative Minimum Tax - AMT'

AMT is designed to prevent taxpayers from escaping their fair share of tax liability through certain tax breaks, although the structure is rife with controversy as it is not indexed to inflation or tax cuts. This causes a condition known as "bracket creep", whereby upper-middle-income taxpayers are becoming subject to this tax. In 2006, the IRS National Taxpayer Advocate reported that the AMT often punishes taxpayers for having children or living in high-tax states.

RELATED TERMS
  1. Form 1045: Application For Tentative ...

    A tax form distributed by the Internal Revenue Service (IRS) ...
  2. High Earners, Not Rich Yet - HENRYs

    A buzzword coined in a 2003 Fortune Magazine article to refer ...
  3. Tax Fairness

    A tax platform based on an ideal that aims to create a system ...
  4. Tax Attribute

    A type of loss or tax credit that must be reduced as a result ...
  5. Tax Preference Item

    A type of income, normally tax-free, that may trigger the alternative ...
  6. Tax Increase Prevention and Reconciliation ...

    A tax-related act signed by President George W. Bush in May 2 ...
RELATED FAQS
  1. Who first came up with the idea of a progressive tax?

    Theodore Roosevelt was the first U.S. president to call for a progressive income tax, which he encouraged Congress to pass ... Read Full Answer >>
  2. Is progressive tax the same thing as marginal tax rate?

    A marginal tax rate is a form of a progressive tax. Any progressive tax is a tax created based on the amount of income an ... Read Full Answer >>
  3. What are the pros and cons of a progressive tax policy and who benefits the most ...

    Those who oppose a progressive tax hierarchy are likely to be those who pay more taxes when such a policy is in place. A ... Read Full Answer >>
  4. Do all taxes create deadweight loss?

    Taxes create deadweight loss because they prevent people from buying a product that costs more after taxing than it would ... Read Full Answer >>
  5. What's the difference between regressive and progressive taxes?

    The U.S. federal tax system and local and state tax systems are complex in that they combine progressive, regressive and ... Read Full Answer >>
  6. What are the differences between regressive, proportional and progressive taxes?

    Tax systems fall into three main categories within the tax code: regressive, proportional and progressive taxes. Regressive ... Read Full Answer >>
Related Articles
  1. Retirement

    Tax Tips For The Individual Investor

    We give you seven guidelines to help you keep more of your money in your pocket.
  2. Bonds & Fixed Income

    The Basics Of Municipal Bonds

    Investing in these bonds may offer a tax-free income stream but they are not without risks.
  3. Taxes

    Avoid Tricky Tax Issues On Municipal Bonds

    Learn the rules every investor should know before buying into this "tax-free" investment.
  4. Taxes

    How To Cut Your Alternative Minimum Tax

    Save yourself money by lowering the amount of tax you owe.
  5. Taxes

    10 Money-Saving Year-End Tax Tips

    Getting organized well before the deadline will curb your frustration and your tax liability.
  6. Taxes

    Cut Employee Stock Option Taxes With AMT Credit

    Learn how refundable AMT credits can help you save on taxes, AMT bills and more.
  7. Budgeting

    It Is Better To Give AND Receive

    You give to benefit others, but there can be perks for you too.
  8. Taxes

    Top 4 Ways to Invest Tax Free

    When you're ready to invest, start by looking at these 4 tax-advantaged ways to build your portfolio and your future.
  9. Taxes

    Missed The Tax Return Deadline? Here's What To Do

    Most important: Do it now.
  10. Taxes

    Are Taxes the Solution for Income Inequality?

    Income inequality continues to increase. Why? And are taxes the solution?

You May Also Like

Hot Definitions
  1. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  2. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  3. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  4. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  5. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  6. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center