Alternative Minimum Tax - AMT

What is an 'Alternative Minimum Tax - AMT'

An alternative minimum tax (AMT) is 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).

BREAKING DOWN '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. Tax Preference Item

    A type of income, normally tax-free, that may trigger the alternative ...
  2. Tax Base

    The assessed value of a set of assets, investments or income ...
  3. IRS Publication 514

    A document published by the Internal Revenue Service that provides ...
  4. Alternative Tax Net Operating Loss ...

    The excess of deductions allowed over the income recognized for ...
  5. Tax Break

    A tax break is a savings on a taxpayer's liability. A tax break ...
  6. Tax Deduction

    A deduction from gross income that arises due to various types ...
Related Articles
  1. Personal Finance

    Cut Employee Stock Option Taxes With AMT Credit

    Learn how refundable AMT credits can help you save on taxes, AMT bills and more.
  2. Personal Finance

    What's IRS Form 1040 For?

    Most U.S. taxpayers will be familiar with the 1040. By the end of filling it out, you'll know how much tax you owe, or what your refund is.
  3. Financial Advisor

    Federal Tax Brackets

    Why do we have income tax brackets? What do they do for us? Read this to understand the basics and where to find your own bracket.
  4. Investing

    Calculating Net of Tax

    Net of tax is a figure that has been adjusted for taxes.
  5. Personal Finance

    What is a Tax Liability?

    Tax liability is the amount of money a person or entity owes to the government as the result of a taxable event.
  6. Personal Finance

    3 Federal Income Tax Facts You Didn't Know

    Learn about three federal income tax facts that most Americans may not know from one of the most trusted financial resources on the Web.
  7. Personal Finance

    Explaining Taxable Income

    Taxable income is the net of gross income and allowable deductions.
  8. Personal Finance

    What's a Marginal Tax Rate?

    The marginal tax rate is based on a progressive tax system, where tax rates for an individual will increase as income rises. This method of taxation aims to fairly tax individuals based upon ...
  9. Personal Finance

    Taxes in California for Small Business: The Basics

    Understand the tax implications of running a small business in California, and learn which state taxes apply based on business type.
  10. Personal Finance

    The Most Controversial Tax Deductions

    When it comes to taxes, it's hard to make people happy but these deductions raised more than the average amount of controversy.
RELATED FAQS
  1. How can I lower my effective tax rate without lowering my income?

    Discover how to reduce your effective tax rate without losing income by maximizing adjustments and deductions, earning tax-free ... Read Answer >>
  2. Is the marginal tax rate a progressive tax?

    Learn how the marginal tax rate is a progressive tax that takes a higher percentage of income tax from high-income earners ... Read Answer >>
  3. How does the marginal tax rate system work?

    The marginal tax rate is the rate of tax that income earners incur on each additional dollar of income. As the marginal tax ... Read Answer >>
  4. What are some ways to minimize tax liability?

    Learn what tax strategies are available to individuals and business owners that may allow for a reduction in tax liability ... Read Answer >>
  5. Can moving to a higher tax bracket cause me to have a lower net income?

    Many people think that when their income increases by enough to push them into a higher tax bracket, their overall take-home ... Read Answer >>
  6. What's the difference between a tax rate and a tax bracket?

    These two terms are often incorrectly used interchangeably. Find out the difference between your tax rate and your tax bracket. ... Read Answer >>
Hot Definitions
  1. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  2. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  3. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  4. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  5. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  6. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
Trading Center